Chinese economy

The Chinese economy stands at crossroads. To manage the next steps of the transformation the conditions for innovation-led growth should be improved. In contrast to the export- and investment based strategy of the past, private consumption will play a more vital role. Faster urbanization can promote the change, as it provides better conditions for the expansion of the services sector. Investment in infrastructure to build a new silk-road might provide a further engine of sustained growth.

The pre-conditions for the transformation are far from being optimal, and reforms in many areas are on the agenda. Demographic change and the low level of social security puts downward pressure on private consumption. Innovation activities of private firms are still restricted, as the access to bank credit is rather limited. Non performing loans in bank balances increased due to excessive lending to state-owned firms. The cutback of overcapacities in many industrial sectors can lead to higher unemployment, and new jobs are required notably for the low-skilled.