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The Chinese Economy is Slowing, and That's a Good Thing

What's the Latest Development?

Many economists have overestimated China's ability to rebound from the global economic slump. While forecasters predicted that China would achieve a growth rate of 8.2%, it remained at 7.7% through the first quarter of the new year (a difference of billions of dollars). But now, economists believe that may be a sign of a more stable Chinese economy that is making a long-awaited structural transition. "The broad outlines of this transformation are well known – a shift from export- and investment-led growth to an economic structure that draws greater support from domestic private consumption. Less well known is that a rebalanced China should have a slower growth rate – the first hints of which may now be evident."

What's the Big Idea?

While the Chinese economy is said to have kept the world afloat through the latest economic crises, reformers have also pressured China to cultivate a more consumer-oriented economy, i.e. the kind that made the US a global superpower and created a vast middle class. "A rebalanced China can grow more slowly for one simple reason: By drawing increased support from services-led consumer demand, China’s new model will embrace a more labor-intensive growth recipe. The numbers seem to bear that out. China’s services sector requires about 35% more jobs per unit of GDP than do manufacturing and construction – the primary drivers of the old model."

Photo credit: Shutterstock.com

Read it at Project Syndicate

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