China Stabilises Slowing Growth The Old Way

There is a black cloud around the silver lining of China’s July factory production numbers. Industrial production increased 9.7% in the month, up from June’s 8.9% and its fastest pace since February. While that suggests the slowdown in growth is stabilizing, it has taken old-school construction and investment spending to do it. That is not a step forward for rebalancing the economy towards consumption and services.

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4 Comments

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4 responses to “China Stabilises Slowing Growth The Old Way

  1. can you please elaborate the last sentence … rebalancing the economy

    I am not good in economy

    thanks
    Cindy

    • China Bystander

      Cindy: The driving force for China’s rapid growth over the past three decades has been infrastructure investment and low-cost exports, the classic development path for a poor country wanting to move up the development ladder through basic industrialisation. Japan and South Korea did much the same thing before it, if not on the same scale. However, as Japan and South Korea found out, there comes a time when that development path runs out of steam. A country just ends up building the proverbial bridges to nowhere and the debt taken on to fund increasingly uneconomic projects eventually collapses under its own weight. The next phase of growth has to come instead from increased domestic consumption and the creation of industries providing higher value added goods and services — changing the balance of drivers of growth in the economy, hence ‘rebalancing’. That also means making structural changes, often opposed by those who have prospered in the first phase of industrialisation (let’s call them ‘vested interests’ by way of shorthand). The new leadership has repeatedly stressed it will continue with reforms to rebalance the economy away from the old way of doing things and towards to new, but the recent slowdown in the economy has tempted it to revert to some old-fashioned infrastructure investment to goose growth, and so put off some of the work of structural reform. Hope that explains it for you. — CB

  2. Pingback: ADB Cuts China Growth Forecast | China Bystander

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