Beijing to increase domestic demand, reduce overreliance on exports
“China's domestic market has huge potential,” Keqiang said on Thursday. With more than a billion consumers, stronger Chinese demand would “provide huge opportunities for the whole world,” he added.
However, China’s domestic market is closed to many foreign-made products. Opening it, Li said, would be gradual. In fact, protections for Chinese companies remain in place.
In the meantime, Beijing wants to put stronger emphasis on domestic consumer demand to create new markets for Chinese goods hitherto reliant on exports.
China's imports topped US trillion last year, but it is not clear how much is raw materials instead of finished products.
“We will press ahead with reforms,” Li said, “and allow the market to better play a primary role in allocating resources.” But he did not mention the yuan, an important factor in shaping resource use. Both the United States and the European Union have blamed Beijing for promoting its exports at the expense of other countries by keeping its currency artificially low against others. On this front, China does not seem in any hurry to allow the markets to determine the value of its currency.
This year, China reached 8.7 per cent growth rate and surpassed Germany as the world's top exporter. Given the size of its domestic market, industrialised nations are eager to get their products onto store shelves in China’s growing domestic market.
Yet, many observers sound a note of caution because accurate data on China’s growth are hard to come by.
Equally, Chinese firms benefit from extremely liberal lending. According to official sources, Chinese banks lent more than a trillion yuan in the first 20 days of the year; others suggest 1.45 trillion. These are huge numbers given Beijing’s full-year lending target of 7.5 trillion yuan for banks in 2010.
In response to the situation, the CBRC wants to better control credit flows to prevent asset bubbles. With this purpose in mind, it urged banks to closely scrutinise loans in order to encourage the real economy rather than short-term speculation (on shares and real estate).
For example, the Bank of China Industrial and the Commercial Bank of China stopped extending new credit lines under the directives of the regulator, but the measure should not last very long.
China’s central bank has also increased the reserve requirement for all mainland-based banks to reduce liquidity available for lending.
However, "all the measures the government is taking may not take effect," said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences. "What they should really do is to make sure the loans are used to fund industrial projects rather than bet on property and stock markets."
Chinese banks advanced a record 9.59 trillion yuan in new loans last year, helping spur an 80 per cent increase in the Shanghai Composite Index and driving property prices to new heights.