Beijing's 'new normal'

The last time that China sent such a high-ranking delegation to the World Economic Forum in Davos was over five years ago. So this year, when China's Prime Minister Li Keqiang himself traveled to Switzerland to deliver the keynote speech, the world sat up and listened.

Just as it it did during the global economic crisis in 2008/2009, the world is once again looking to China to come to the rescue - even if the country's own economy is looking somewhat less robust than it did then and recently failed to achieve its self-imposed target of 7.5 percent growth. Only just. The figure was 7.4 percent, and one can of course challenge the accuracy of such figures. Perhaps growth was even lower. Either way, it's the first time in 25 years that Beijing missed its growth targets.

Exports were also down last year – a situation unlikely to change in 2015. Earlier this week, the International Monetary Fund (IMF) cut its growth forecast for 2015 by 0.3 percent, despite the fact that the low oil price is currently serving as something of a stimulus program.

The stance taken by Premier Li is therefore crucial. The point of his speech in Davos was perfectly obvious: to boost the trust of the assembled global decision-makers in the world's largest economy measured by purchasing power parities And while Li is famously silver-tongued, this was a job that required all his rhetorical skills. After all, it is by no means immediately apparent that a slump in exports reflects not only low international demand but also a process of reform introduced by the government itself.

China's "new normal"

"[China's economic development] is in a critical stage where its path upward is particularly steep,” Li told his audience in Davos. “In the latter half of the year and beyond, we will further accelerate the transformation of the development model, push forward structural readjustment through structural reform… we will be able to maintain a medium-high growth rate, move toward medium-high level of development, create more value and upgrade the Chinese economy.”

This is why Beijing is keen to reduce its dependency on exports and beef up domestic consumption. Until now, it accounts for just 37 percent of China's GDP- compared to over 70 percent in the US. Beijing now needs to push hard for an economic restructuring, using state intervention to create a more modern economy that ultimately can function without state intervention. It's a little paradoxical.

But the same principle applies to the reform of the financial system. In Davos, Li promised that there was no financial crisis or "hard landing" in store for the Chinese economy. The politician with a doctorate in economics is seen as so modern and western, especially in the field of finance, that he often faces resistance within the Communist party. Moreover, one of the unforeseen consequences of China's anti-corruption campaign is that everyone is keen not to be seen high-falutin' and risk-friendly – which leads to many lost opportunities to kickstart an economic upswing.

The road to reform is littered with unexpected obstacles. And of course, it was embarked upon too late. Nevertheless, Li now has no choice but to stay on track and carry on down a path no country has ever trodden before.

Lasting growth

But at least it knows its destination: a China where economic growth is not artificially spurred by speculation but by job creation and lasting prosperity, and based on environmental and social common sense. The population will only consume more if it feels that the future is stable and predictable. Which is why Beijing has set itself the target of doubling per capita income by 2020.

In Europe, the Swiss are especially eager to see Beijing's reforms take effect. Last week, the Swiss National Bank removed the cap it had in place to prevent the Swiss franc from rising too high against the euro, sending it soaring by 20 percent. The prices for Swiss products are rising, so have fewer buyers in Europe, the US and China.

China would theoretically be well-placed to pick up the slack, were consumption to rise in the wake of reforms. But this will take time. And in the meantime, not even Premier Li has anything more to offer the Swiss in these testing times than condolences. The advantages of the free trade agreement between China and Switzerland, that came into force last summer, can balance out the higher prices Nor does it help that the Swiss were the first in Europe to sign such an agreement with China.

For now, German exporters are keeping a keen eye on the situation in China, because the euro won't remain low forever. The same fate that befell Switzerland could befall Germany: if demand for expensive products drops, the only option is to cater to the ones who can afford them.

In Davos, many no doubt realized how indispensable China has become to European growth. At best, China's “new normal” means that relative demand is dropping, but absolute demand is rising. We'll sell more products even though they're more expensive. The result: more work for Premier Li and more uncertainty for us.

DW columnist Frank Sieren has lived in Beijing for 20 years.