Analysis

Can China Break Its Addiction to Exports?
Chinese Premier Wen Jiabao tells members of the National People’s Congress at the opening session on March 5 that China will aim for 7.5 percent growth in 2012 and that the country will work to restructure its economy to become less dependent on exports. (LIU JIN/AFP/Getty Images)
March 6, 2012
| Economics
| Asia and the Pacific
Summary
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For the first time in eight years, the Chinese government announced that its target growth rate would fall below 8 percent and openly admitted that its economy was imbalanced and in need of restructuring. China has acknowledged the need to reorient its economy towards domestic consumption and away from investment and exports, but has failed to deliver on similar promises in the past. Despite strong foreign exchange reserves, China must now address the consequences of two decades of a policy of promoting exports and questionable investments in state-led construction and infrastructure projects.
 
The announcement that China was lowering the government’s target for economic growth in 2012 to 7.5 percent was made by Chinese Premier Wen Jiabao at the annual opening ceremony of the National People’s Congress. World markets initially reacted negatively to the news, but LIGNET believes the announcement will be welcomed in the longer term. The economic model China has been following for the past two decades is simply unsustainable. Whether or not China will be able to follow through on its commitment to restructure its economy will be a key challenge in the months, even years ahead. Those challenges are explored below.

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