In the November 2015 McKinsey Quarterly, Jonathan Woetzel, director of the McKinsey Global Institute, argues that while predictions of China's woes are plentiful, weighing the evidence, the sky is not about to fall down. In particular, he debunks the following Five myths about the Chinese economy -
- China has been faking it.
- China's economy lacks the capacity to innovate.
- China's environmental degradation is at the point of no return.
- Unproductive investment and rising debt fuels China’s rapid growth
- Social inequities and disenfranchised people threaten stability
Tyler Cowen is an American economist, academic, and writer. He occupies the Holbert C. Harris Chair of economics, as a professor at George Mason University, and is co-author, with Alex Tabarrok, of the popular economics blog Marginal Revolution. His latest take on the rise and fall of China's economy is also educative.
The Chinese juggernaut is changing course in a major transition towards a slower, more innovative, more sustainable, and more equitable growth model where services and consumption take up a larger share of the economy with less energy-intensive inputs.These changes are beginning to emerge from economic data for the third-quarter.
The Economist has this to say -
"..... China is changing. The services sector expanded 8.6% year on year in the third quarter, matching its strongest growth since 2011....... The transition can also be seen in the seemingly relentless slowdown of investment versus much more robust consumption. Overall investment rose 10.3% year on year in the first nine months of 2015, the lowest in 15 years. But retail sales nudged up to 10.8% growth year on year in real terms in September, a seven-month high. A healthy labor market has supported this re-balancing. Income growth actually improved a touch in the third quarter, accelerating to a 7.7% year-on-year increase in real terms."
As services and consumption now account for the bulk of China's economy, it's no wonder that the much-hyped, so-called, "Li Keqiang Index" of using electricity consumption, railway freight volume, and bank loans to gauge the nations's "real" economic growth now risks being wide off the mark.
Listen to a podcast on the Chinese economy and the coming Five Year Plan (2015-20) by Stephen Roach, senior fellow at Yale University’s Jackson Institute of Global Affairs and former Chairman of Morgan Stanley Asia.
However, as China's economy is slowing significantly, stability begins to trump everything else to the extent that China is hamstrung in not delaying, at least temporarily, much of the financial liberalization needed to transition to more sustainable growth. In this scenario, a target growth rate of even six per cent may be over-ambitious, according to a report in the Wall Street Journal on 6 November.
On FT Markets, George Magnus, Senior Economic Advisor to UBS, opines that China appears to want both growth and financial reform. The risk is that China could run the risks of ending up with neither.
For the longer-term, however, more enthusiasm than scepticism is beginning to emerge for China's bold and epic vision of the One Belt, One Road initiative. This is being seen in more inclusive terms of lifting all boats, including China's, rather than just a Cold War strategy of reinforcing China's economic dominance. Click here, here, here, here, and here.
Footnote: On specific aspects of the Chinese economy, please visit the following analyses -