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Exports are seen as a driver of growth, the domestic market is weak

Exports will continue to drive China's economy for the rest of the year, as the domestic market remains sluggish, according to analysts.

Chinese leaders have for many years stated that they want to move away from exports as the main source of growth and towards domestic consumption for sustainable economic growth, said Mattie Bekink, China director at the Economist Intelligence Corporate Network.

"But that is certainly not what happened during the pandemic. So China's economic recovery has been largely dependent on the return to its old export-driven model, while consumption has really lagged," she told CNBC's "Squawk Box Asia" on Thursday.

"By 2020, for example, net exports contributed to the largest share of Chinese GDP growth since 1997, and consumption has not even recovered yet to its pre-Covid trend, according to China's National Bureau of Statistics," Bekink said.

Despite global supply chain disruptions during the pandemic, China's trade surplus rose to $ 676.43 billion by 2021 - up from $ 523.99 billion by 2020, and the highest ever going back to 1950, according to official Wind Information data.

"Exports will continue to be a very important growth driver for the Chinese economy by 2022," Zerlina Zeng, a senior credit analyst at CreditSights, told CNBC on Wednesday.

On Thursday, China's central bank lowered its benchmark lending rates again due to growing concerns about a slowdown in the economy, reducing the one-year prime interest rate on loans as well as the five-year LPR. Lending rates affect lending rates for business and household loans in the country.

The world's second largest economy grew 8.1% in 2021 as industrial production rose steadily through the end of the year, according to official data from China's National Bureau of Statistics released on Monday. GDP in the fourth quarter rose 4% from a year ago, faster than analysts expected.

"China's economy is running on almost two tracks. The export-based economy is actually fine, but the domestic economy is pretty soft," Steve Cochrane, chief economist for the Asia-Pacific region at Moody's Analytics, told CNBC's "Squawk Box Asia" on Wednesday.

Weak consumption in China

Still, domestic demand will continue to be a drag on the economy due to China's zero-Covid policy, which has prompted several travel restrictions in the country, including the closure of Xi'an city in late December.

Official data from Monday showed that retail sales missed expectations and grew by 1.7% in December compared to a year ago.

"Given the zero-Covid policy and the difficulties with travel tourism, even spending in the coming holiday season will be quite weak," Cochrane added.

The lunar new year - which begins in early February this year - is China's largest holiday season, with millions of people crossing the country to join their loved ones for the spring festivities.

With consumer sentiment uncertain and still weak employment, China is expected to continue its policy easing to boost the domestic economy.

"That's why the PBOC has been front-loading on monetary policy easing, including interest rate cuts as well as net injections of medium to long-term liquidity," Zeng said, referring to the People's Bank of China's recent surprising move to lower its lending rates. .

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On Monday, the Bank of China lowered the cost of borrowing for medium-term loans for the first time since April 2020. It also lowered the seven-day reverse repurchase rate, another lending measure. The PBOC also injected an additional 200 billion yuan ($ 31.5 billion) of medium-term cash into the banking system.

"I would not be surprised given the huge amount of uncertainty in the economy if there are continued additions to liquidity and further interest rate cuts to help strengthen the economy in China," Moody's Cochrane added.

- CNBC's Evelyn Cheng and Saheli Roy Choudhury contributed to this report


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