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China’s Economy – Will China Slow Down?

China’s Economy – Will China Slow Down?

In the popular imagination, China’s economy is often viewed as a lopsided three-horse chariot: exports and investment are steroid-fed giants, while consumption is a dwarf, perhaps

Qingdao. China. August 2009.

Qingdao. China. August 2009. (Photo credit: Wikipedia)

intentionally stunted by government policy. But there are a few things wrong with this image. While China does need to adjust to the fact that exports can’t outpace imports forever, there is nothing wrong in and of itself with high export growth, and

China will continue to benefit from high exports volume, even as a share of GDP, as long as imports keep pace. Its investment to GDP ratio may need to be [...]

Columbia Ideas at Work : Feature : Will+China+Slow+DownIn the popular imagination, China’s economy is often viewed as a lopsided three-horse chariot: exports and investment are steroid-fed giants, while consumption is a dwarf, perhaps intentionally stunted by government policy. But there are a few things wrong with this image. While China does need to adjust to the fact that exports can’t outpace imports forever, there is nothing wrong in and of itself with high export growth, and China will continue to benefit from high exports volume, even as a share of GDP, as long as imports keep pace. Its investment to GDP ratio may need to be moderated somewhat. But the primary problem is not the level of investment, it’s the composition. China can – must – improve its financial system by capping the allocation system to allow more domestic and foreign capital to be allocated away from the less efficient majority state-owned entities toward more efficient privately-owned entities. Consumption does need a boost, but it’s hardly a dwarf among giants: per capita real consumption in China, adjusted for inflation, has increased by 80 percent cumulative over the last seven years, in spite of a global recession in more recent years. No other country of a reasonable size can match this rate of growth during the same period.

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