As global growth worries are coming to a head, China's policymakers are increasingly facing a tough choice: whether to get serious about ending their long reliance on exports to power the economy.
Over the weekend, China's Vice Premier Wang Qishan warned that the world faced a protracted global recession. They were the most bearish comments from a senior Chinese official since Europe's debt crisis re-ignited over the summer.
"I think all it does is it reflects the Chinese leadership's concern that the world is not recovering, that their exports sector they've been able to rely on for basically the past decade will not be able to help them out again," Fraser Howie, Managing Director at CLSA told CNBC on Monday.
Europe is the largest market for China's exports and the latest Eurostat data show the Euro zone is rapidly slowing. With the U.S. economy continuing to suffer a weak recovery, analysts don't expect American consumers to return to their spending ways anytime soon. China's exports are still growing, if at a slower pace. In October, exports grew nearly 16 percent over the previous year, down from a 17.9 percent growth in September and 24.5 percent in August.
Analysts say the growth in exports, which make up 30 percent of GDP, are unsustainable and that China will have to rebalance its economy towards greater domestic consumption.
According to Paul Gruenwald, Chief Economist, Asia Pacific at ANZ, China has already been rebalancing the economy away from exports. "If you take apart Chinese growth, you actually see the contribution from net exports as being close to zero since 2008, so it's been totally a domestic story."
Gruenwald believes that China can boost consumption, which currently makes up just 35 percent of GDP, about half the OECD average, by getting more credit to households and unleashing domestic savings.
With less than one year before China's president and premier step aside, taking tough policy calls isn't going to be easy. Instead, CLSA's Howie believes the most likely response from China will be a mixture of actions, including boosting domestic consumption, easing monetary policy and announcing fiscal stimulus measures.
"We know that the Chinese are going to need to act, they are going to suffer a very difficult sort of next 5 years," Howie says. "They've got tools in their toolbox, but they're going to have to use them."
For now though there are few signs that China will allow its export sector to suffer in the face of a global slowdown. Last week, the central bank signaled it might adjust tight monetary policy, which has been hurting small and medium enterprises (SMEs) in the export sector.
According to HSBC's Co-head of Asian Economics Research Qu Hongbin, two new policy steps announced by the finance ministry last week - a trial value added tax (VAT) and exemption of administrative fees for small companies for the next 3 years - will also boost growth.
"Selective easing on fiscal front can and should play a larger role in supporting small companies and export-oriented companies," Qu wrote to clients.
Analysts say a major stimulus effort may be tougher since China is already digesting its last credit expansion when the global financial crisis hit in 2008. That expansion has been blamed by economists for sparking higher inflation and potentially increasing bad debts in the system.
"You can't throw the kitchen sink at the domestic economy every 3 years and have it sort of maintain your macro stability," says Gruenwald.