[Teukpawon Diary] Market China

Domestic Demand Drives China's GDP
China Is No Longer the World's Factory but a Market

[Asia Economy Beijing=Special Correspondent Jo Young-shin] After the 5th Plenary Session of the 19th Central Committee of the Communist Party in October 2020, the Chinese leadership announced the "14th Five-Year Economic Plan (2021?2025, 14·5 Plan)." The core keyword of the 14·5 Plan is "dual circulation." It aims to drive the Chinese economy through manufacturing and domestic consumption.

Photo by Xinhua News Agency Capture

For those who hold the preconceived notion of "Made in China," consumption is not an immediately relatable concept. This is because the formula "China = the world's factory" has been deeply ingrained. As a result, many overlook the purchasing power of the 1.4 billion population. In the first quarter, domestic consumption accounted for 69.4% of China's Gross Domestic Product (GDP). If domestic consumption falters, the Chinese economy is structurally prone to collapse.

According to the National Bureau of Statistics of China on the 15th, China's GDP for the second quarter was 29.2464 trillion yuan (approximately 5724 trillion Korean won), showing only a 0.4% increase compared to the same period last year. The main cause is the decline in consumption. At the end of March, as COVID-19 resurged, China's retail sales turned negative (-3.5%) compared to the same month last year. In April, the start of the second quarter, it plummeted to -11.1%, and in May it recorded -6.7%. Although it turned positive (3.1%) in June after lockdowns were lifted, the level remains low.

Import and export statistics also confirm problems in China's domestic market. According to the June import-export statistics released by the General Administration of Customs of China, China's exports in the first half of the year increased by 13.2% year-on-year to 11.14 trillion yuan, but imports rose by only 4.8% (8.66 trillion yuan) compared to the same period last year. The slow growth in imports indicates that the domestic market in China is not performing well. China accounts for more than 25% of South Korea's total exports. A decline in Chinese consumption leads to a decrease in South Korean exports. If China's economic growth rate falls by 1 percentage point, South Korea's economic growth rate also decreases by about 0.1 to 0.15 percentage points.

To escape the influence of the Chinese economy, the idea of "de-Chinaization" is openly discussed. This is a valid point. Based on cost factors such as labor, China has lost its function as a factory. The era of globalization, where production is done in China and products are sold worldwide, is over.

China should be viewed not as a factory but as a market. Products tailored to Chinese tastes must be made locally and sold exclusively in China. The idea of doing business in China with mediocre technology and ideas should be abandoned. The Chinese already possess that level of skill and technology.

It is difficult to decide to part ways with China because it is geographically too close. Also, the purchasing power of 1.4 billion people is too valuable to discard. The economic and industrial paradigm of globalization that we learned in school no longer applies, at least not to the Chinese market.

This content was produced with the assistance of AI translation services.