But if there is a silver lining to the slowdown, it is that it reinforces the urgency of reforms that will establish the foundation for slower, but higher-quality, growth.
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Zhang Peng via Getty Images New residential buildings in Chongqing, China. That is why, in November 2013, they committed to ambitious structural reforms. Border areas will explore new models of cross-border cooperation and new mechanisms for regional growth.
Frankly, Xi inherited a bad hand after a decade in which Beijing kicked the most hard reforms down the road.
This presents a staggering challenge of political will, sequencing and execution that will take years, not months. Not many state-owned enterprises have been privatized or streamlined.
There is no playbook for rebooting a slowing $US10 trillion hybrid economy still in a tug of war between state control and markets. China has gained huge market share in the global economy, and has distributed its income gains disproportionately in fixed asset investments.
The United States, for all its differences with Beijing, should be rooting for China’s economic reformers to succeed.
This week, China’s President Xi will visit the USA, as economic uncertainty and questionable policies continue to plague the world’s most populous country.
What is therefore striking about my current trip to Shanghai, Beijing and Wuxi (a second tier city more-or-less the same size as London) is that the film’s core argument is now conventional wisdom among officials and business leaders. However, the fundamentals underpinning a stable Chinese economy have not changed. Second, China’s strictly controlled society has given rise to well-organized corruption, which – as economists Andrei Shleifer and Robert Vishny argued in the early 1990s – is surely less harmful than the chaotic corruption experienced by, for example, the ex-Soviet countries during their early years of transition.
To some degree, a slowdown of this kind is inevitable as China hits a point of diminishing return that many maturing economies face.
This handicaps Chinese private firms and impedes job creation. “China’s excess capacity, along with the withdrawn global funds from the Chinese market, is what India desires”, it added. China’s leaders must improve labour-market flexibility and labour mobility; make land use, acquisition and compensation more efficient; and build a more market-based financial system. The insecure populations of the European Union (EU) and the USA have no appetite to help the rest of the world – and certainly not the larger emerging markets, which are often seen as future threats.
“People are starting to understand the fragility of the Chinese economy”, says Chang. Total direct Chinese investment now exceeds $US54 billion, including green-field investment.
That drop in Chinese commodity demand is affecting a wide spectrum of companies and nations that have been supplying China with raw materials for years.
When President Barack Obama and Chinese President Xi Jinping meet at the White House this week, security issues are expected to feature prominently on their agenda.
Third, as Treasury secretary I saw first hand during the 2008 financial crisis that the world needs effective economic governance.
China can’t be the catalyst for global economic growth, and then when it falters, suddenly not the catalyst for global economic decline. The next stage of China’s great economic miracle isn’t a given.
The demand from China of the past is no longer the reality we face. “Now, we only buy and spend what we need”.
Likewise with global financial institutions.
They recognise that if China were to continue investing at a globally unprecedented rate of 50% of national income – greater than even Japan at its 1980s peak – and accumulating debts at an annual rate of more than 15% of GDP, there is a serious risk of a calamitous Japanese crash á la 1990. In the meantime, insurers have impressed the market with a series of high-profile mergers and acquisitions, expanding on an unprecedented scale into other services both within and outside of China.
He said the newest offer reportedly cut the list from 80 to about 40 sectors that would be excluded from foreign investment. A massive trade surplus with the United States has enabled China’s military buildup.
Xi will land in Washington this week at a time of increasing mistrust and growing tensions. “…Singapore is an economic twin of the growth of Stalin’s Soviet Union”, he [Krugman] wrote in Foreign Affairs (Nov./Dec., “The Myth of Asia’s Miracle”).
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If China and the United States don’t take bold action to anchor the bilateral relationship, a rupture is inevitable.
