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The View | Unlike 1990s Japan, China’s economy can power on with internal circulation
- With exports flagging and US techno-nationalism on the rise, China’s economic predicament is being compared to that of 1990s Japan and the resulting stagnation
- But unlike Japan, China still has plenty of room to grow effective investments and boost household consumption under its internal circulation strategy
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The expansion of China’s exports has contributed significantly to the country’s economic success over the past four decades. From 1981-2021, exports as a percentage of China’s gross domestic product rose to 20 per cent from 7.4 per cent, and China’s share of global exports of goods and services has soared to 13 per cent from 0.6 per cent.
But the role of the export-led growth strategy is shrinking for China, as the international market becomes relatively smaller. In 1990, international markets consumed 64 times more goods and services than the Chinese market. By last year, this figure had fallen to 4.6 times.
It is highly improbable that growth in net exports will be the main driver of the Chinese economy for much longer. Last year, countries worldwide faced a combined trade deficit of US$1.4 trillion, the highest since the 2008 global financial crisis, with countries’ deficits with China accounting for roughly a third of the sum. In comparison, China’s annual real GDP growth is as much as US$800 billion.
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Equally importantly, even though mainstream economic theory does not support this view, many economies, both developed and emerging, now believe their trade deficits with China are too large and too detrimental to their economies.
The United States, for example, has had a trade deficit with China averaging around 1.5 per cent of its GDP every year since 2006, when its trade deficit with Japan peaked at just 1.2 per cent of GDP in 1986 – a year after the Plaza Accord was signed. If China wishes to maintain good relations and expand bilateral cooperation, it should not seek to increase net exports to these countries.
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Moreover, the boosting of internal circulation – China’s strategy to improve the domestic cycle of production, distribution and consumption – has become necessary for the country’s technological advancement.
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