Economic Report: China - June 2015

Executive Summary

China’s economy expanded by 7.4% in 2014 and thus just missed the government’s growth target of 7.5%. While the growth rate remains high as such, it was the lowest China has seen in 24 years. Although the lower growth is partly due to a cyclical cool-down, it is also the result of a more structural change of China’s economy. President Xi Jinping described this economic pattern as the ‘New Normal’.

China takes a two-fold approach to tackle its economic challenges. Alongside with short-term stimulus like liquidity injections and interest rate cuts, the speed of economic restructuring and upgrading has increased. In 2014, more than 300 reforms have been announced for the years to come.

Yet, there is still a long way to go and China’s challenges are manifold. They include a downturn in the property market, rising local government debt levels, the risks of a huge shadow banking system, the danger of a stock market bubble, an aging population, labor shortage and the problems of large overcapacities in the heavy industries.

While the current economic slowdown did also leave its mark on Swiss trade with China, the bilateral trade activity still developed relatively well in an international comparison. Although a significant boost from the new Free Trade Agreement (FTA) has not been visible in the data thus far, the implementation of the bilateral agreement has been rather smooth since it entered into force in July 2014. Some initial problems could already be addressed and continue to be discussed between the authorities.

In order to strengthen trade ties between China, the Asian regions and Europe, the New Silk Road Initiatives have been launched by China. Being one of the first countries in Western Europe to become a founding member of the Asia Infrastructure Investment Bank, Switzerland is well positioned to play a role in the development of these new trade routes. Also, the positioning of Switzerland as a competitive RMB-Hub has gained further traction in the recent past. Various arrangements have been agreed on in early 2015, in order to equip the Swiss financial centre with the necessary infrastructure to function as a fully-fledged RMB-Hub. 

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