News that China’s economic growth rate is falling and set to stay that way is significant and reassuring. The announcement was made officially, stressing a fall in productivity and following a remark last week by the new president Xi Jinping that his country’s “model of development is not sustainable”.
He is right. Based on maximising exports and state-driven investment, and lately on major credit stimulus, the model continued to assume international demand could absorb China’s output indefinitely. That is not so and was leading to increased trade tensions and internal economic and social imbalances. The leadership is well aware of these effects and fears their political consequences. They have clearly targeted blatant social and regional inequalities, party corruption and extravagance in a drive to restore legitimacy. Their great challenge is to engineer a shift from export-led growth to one based on internal demand capable of enabling a more acceptable pattern of economic wellbeing.
That will have global consequences because China’s economy is now the world’s second largest. It may be bad news for commodity and primary goods exporters in Australia, Brazil and Indonesia in the short term. But on a longer perspective this looks like a shift more far-seeing international analysts have been seeking towards a more sustainable way of managing this colossus.
The potentially huge Chinese middle class can sustain such an internal demand and so can the migrant and other workers at the base of the pyramid now calling for and getting higher wages and better living conditions. Their needs should determine the alternative outputs typical of other emerging economies. Among them the crucial area of environmental sustainability can reclaim its proper priority in China, afflicted by frightening urban pollution. Requiring a huge effort of innovation, that alone could change China and then the world greatly for the better if it succeeds.