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Why China’s Slowing Economic Growth Isn’t Negative

Despite some scary media predictions, the slowing may be a good thing

8Sep

Whenever China’s economy is discussed, it’s either in turmoil - seen in the stock market’s recent crash - or growing at an unprecedented rate. Rarely, however, is it in a state of calm, a common characteristic in developed economies.

When the West was coming out of the 2008 economic crisis, Mohamed El-Erian - who at the time was the head of PIMCO - called the region’s rebalancing its ‘new normal’, reiterating that the crisis had caused irreparable damage, only addressable by shifting expectations. The same phrase was recently used by China’s President Xi Jinping, but this time, with different meaning attached to it.

Last year, China’s GDP fell to 7.4%, its lowest for almost 25 years. While it’s far from the lower growth rates seen with the German economy - which has a growth rate of 1.6% - it’s in stark contrast to what we’ve come to expect from China, where a 10% rate was recorded as recent as 2010. This drop, however, is the dawn of China’s ‘new normal’, the next phase of the country’s development.

China’s economy, which remains heavily reliant on production, is often the go-to issue when the country’s faltering growth is mentioned. For many, it’s now not a question of if China’s economy is going to fail, but when. But to expect a country’s economy, regardless of its power and size, to continue growing so quickly is unrealistic. Now, the Chinese government expects the economy to become more sustainable, and one which ultimately distributes wealth more evenly. For example, the government has already put a number of policies in place which reduce the power of local governments, especially in regard to the ease at which they can take out loans. This has slowed down local investment, which was previously unhealthy.

The recent stock market crash will have done little to silence China’s critics. While the crash was good news for developed countries, exporters of natural resources - like Mexico and India - were hit hard, demonstrating the influence that China has on the rest of the world. The crash, however, only serves to reinforce the credibility of those who feel that China must concentrate on moving to a more service based economy, as it would allow them to become more stable in the long run.

China is slowly ingratiating itself with the rest of world’s economy, but for that to happen, we must give them time. Its ‘new normal’ represents a new stage in the country’s development, meaning that instead of being on the verge of falling into disarray, it’s stepping into a new phase of its development.

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