GENEVA, Sept 4 (AFP): China's booming export-driven economy remains vulnerable to any changes in Western consumption patterns but its burgeoning domestic market could lessen this risk, the World Economic Forum said yesterday.
China's retail sector is currently growing at a rate of 13 per cent and investors are increasingly focusing on the Asian giant as a source of consumers and not just simply cheap labour, the WEF said in a report on the risks to the global economy.
The report comes ahead of a WEF-sponsored meeting in Dalian, China from September 6-8, called the "Inaugural Annual Meeting of New Champions" and featuring over 1,700 Chinese and Western participants.
The world's economy in general remains dependent on its biggest single market, the United States, where consumption has grown by 3.5 per cent per year since 1998, it said.
"It is easy to see why many observers fear the dependency on a single source of demand," the report said, especially given the recent fears of a credit crunch sparked by problems in the US housing market.
US consumption has been funded by debt-both by consumers borrowing against high house prices, and Asian and oil-exporting countries investing in US Treasury bills, the report noted.
China's abundance of cheap labour has been put to work making goods for export to the US and other Western countries and the country is particularly exposed, it added.
"Dependence on the consumption patterns of US and EU consumers... may be the biggest vulnerability of the Chinese economy," the report said.
The WEF said Chinese industry is currently at a "turning point" amid rising wage pressures, and shrinking profits as domestic competition picks up in the manufacturing sector.
This is compounded by structural issues such as the rarity of bankruptcy and weak intellectual property rights, it added.
However, the rise of the domestic consumer market as a result of growing prosperity represents a fresh chance for Chinese industry, according to the report. It said investors were starting to fund local design capabilities rather than simply focusing on cheap labour.
"Many firms are discovering that these capabilities are excellent, and are beginning to export designs for manufacture elsewhere," the report noted.
However, the WEF warned that "the question remains whether the (domestic consumer) market will grow fast enough to credibly mitigate a downturn in export markets."
China consumers key to ending reliance on Western markets
FE Team | Published: September 05, 2007 00:00:00 | Updated: February 01, 2018 00:00:00
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