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As China slows down, where would its next round of growth come from?

China attributes its slowest growth in a quarter century to uncertainties in the international economic environment, and to weak real estate investment and poor imports and exports at home. Should it export its way back to growth, or take a different tack?

January 22, 2016 | Research

In 1978, China opened up to the world, as the Communist Party slowly adopted a market economy. The economy steadily grew, rapidly picking up pace to post blistering double-digit growth by the 1980s. It was an economic growth that made the country the second biggest economy in the world in less than a generation.

The China Statistical Yearbook shows that between 1978 to 2009, China’s average growth rate was 9.90%, while the average for the world was 2.98%.With the financial crisis of 2008, however, the world’s factory was badly hit by falling demand for made in China goods. By December 2015, the giant economy had slowed to its lowest growth rate in 25 years.

The China National Bureau of Statistics (CNBS) released figures on the country’s gross domestic product (GDP) on 19 January. In line with market expectations and the 7% growth target set by Premier Li in early 2015, growth settled at 6.9%, with GDP amounting to 67,678 billion Renminbi (RMB) ($10,285 billion). The slowing down was mainly driven by weak real estate investment and poor imports and exports, according to CNBS.

Growth of investment in fixed assets slowed down by 2.9% compared to 2014, while investment in the real estate sector only grew by 1%, far below the annual target at 7%. The real estate sector saw significant diversification in various parts of China last year. Although tier one cities like Beijing, Shanghai, and Shenzhen saw on average 10% growth in both sales and transaction volumes, some tier two and most tier three cities recorded negative growth. The crash of property prices and foreign capital outflow exerted a negative impact on banks’ balance sheets.

Both imports and exports declined in 2015. Gross imports declined by 13.2% while gross exports dropped by 1.8%, which nevertheless still resulted in a trade surplus of around RMB 3,686.5 billion ($560.3 billion). The trade surplus, which further exerts pressure on the RMB, is not good for banks’ t...

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Markets & Exchanges, Risk and Regulation, Transaction Banking

Keywords:China, GDP, Stock Market, Capital Account, Circuit Breaker, Renminbi, Devaluation, Export, Import, Trade Balance, Consumption