China’s Changing Development Pattern


DATA available on the world’s two largest economies, China and the U.S., for 2013 provide an opportunity to take stock of China’s immediate economic prospects and the more general challenges facing its economic development strategy.

The short-term trends are clear. China’s economic growth decelerated marginally from 7.8 percent in 2012 to 7.7 percent in 2013. U.S. economic growth slowed more substantially – from 2.8 percent in 2012 to 1.9 percent in 2013. In money terms, China’s GDP in 2013 grew by US $1,030 billion and U.S. GDP by US $560 billion. Western media hype about U.S.’s “strong recovery” and China’s “major slowdown” was therefore the opposite of reality.

More significant for China’s development strategy than simply one year’s figures are the fundamental trends in the world economy. These show that since the beginning of the financial crisis the developed economies have entered what is best described as a “Great Stagnation.” This necessarily has major consequences for China’s development pattern.

During almost all the first three decades of China’s reforms from 1978 to 2007, the last year before the financial crisis, China’s economic development was aided by tailwinds from the world economy. China skillfully utilized these to achieve annual economic growth of 9.9 percent – compared to the world’s 3.0 percent and advanced economies’ 2.7 percent.

But from 2008 tailwinds turned into headwinds. Even assuming the IMF’s latest estimate was achieved in 2013, growth in the advanced economies in the six years after 2007 averaged only 0.6 percent.  As advanced economies were traditionally China’s largest export markets this sharp deceleration necessarily had negative consequences for China’s previous growth model.

Given the scale of slowdown in advanced economies, China came through this rather well. China’s economic growth slowed only to an average 9.0 percent in 2007-2013. China’s growth lead over the high income economies actually increased – in 1978-2006 China grew an average 7.2 percent more rapidly than the advanced economies, while in 2007-2013 this increased to 8.4 percent.

Taking only bilateral comparisons with the U.S., over the whole period 2007-2013 the U.S. economy grew by only 6.0 percent while China grew by 67.7 percent. Since the beginning of the financial crisis, China overtook the U.S. to become world number one in trade in goods, in industrial production, and in annual savings – the finance available for investment.

But despite China coming through the international financial crisis more successfully than other major economies, it would be utopian to imagine it would suffer no bruises from the world’s greatest economic crisis for 80 years. China therefore simultaneously faces the challenge of repairing any economic damage and preparing for the next period of economic development – as will be seen the two coincide.

Internationally there is no reason to anticipate sharp acceleration in the advanced economies. In all major developed economies investment, economic growth’s main driver, remains below pre-crisis levels. In the last five years the U.S. and EU persistently underperformed projections made in advance by the IMF – meaning its 2.2 percent projection for advanced economy growth in 2014 is probably best taken as an upper bound. In contrast, despite some slowing, economic growth in developing economies remains more rapid due to higher investment levels, and the IMF projects 5.1 percent growth in 2014.

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