Macroscope | China and Germany need new thinking to attain strong growth

Major industrial nations might appear poles apart but often have a lot of problems in common. For China and Germany, it is a case of same difference when it comes to the question of ramping up growth for future world prosperity.

With the biggest trade surplus in the world, China and Germany critically rely on the global economy keeping in good shape for their export successes. Overshadowed by domestic economic slowdown, deflation fears and relatively underactive consumer sectors, both countries remain in search of the Holy Grail of stronger growth.

Continued monetary easing remains the main frontline weapon to resurrect faster growth. But with both countries so dependent on overseas demand to keep pump-priming the export sectors, there are important lessons to be learned. China and Germany need to tweak their growth models and think outside the box. By helping other countries grow faster, they can help themselves in the process.

At least China has plenty in reserve for future monetary easing. Last month's 25-basis-point cut in the one-year benchmark deposit rate to 5.35 per cent is unlikely to be the central bank's last move in this easing cycle. The economy is flirting with deflation and gross domestic product growth at 7.4 per cent is the slowest pace in nearly a quarter of a century. To keep growth targets on track, it is vital that policy settings are kept as accommodative as possible.

The rate cut was a clear nod to the slowdown in the property sector, a key bellwether for boosting consumer confidence. The authorities are aware that shifting the economy away from an export-dependent to a consumer-driven model is a prerequisite for achieving more sustainable growth over the long term, too.

But China also starts to look at the broader picture and aims to boost regional growth through plans for the Asian Infrastructure Investment Bank, which was launched last year. It will be a key element in helping to revitalise Asia's economy, while injecting positive feedback into China's longer-term growth objectives at the same time.

There are important lessons for Germany. With interest rates already at zero, the euro zone is running out of options to get the upper hand over deepening deflation and economic stagnation. The European Central Bank has one last chance with its €1 trillion (HK$8.4 trillion) quantitative easing plan, but the odds are that it will be too little, too late.