22 January 2015
China's economic growth slowed to 7.4% in 2014, downshifting to a level not seen in a quarter century and firmly marking the end of a high-growth heyday that buoyed global demand for everything from iron ore to designer handbags. The slipping momentum in China, which reported economic growth of 7.7% in 2013, has reverberated around the world, sending prices for commodities tumbling and weakening an already soft global economy.
Predictions of China economic slow-down have been routine headline stories over the past few years. Judging from this Wall Street Journal reporting, it seems to have returned with a vengeance. But it is seriously misleading.
China's 'high-growth heyday' ended in 2007, when two decades of double-digit growth were punctured by the global financial crisis. An enormous fiscal and financial stimulus in 2009 temporarily took growth over 10% again, but this was unsustainable. For the pasts three years, China's growth rate has started with a '7'.
Anyone putting much weight on the decimal figure misses the point. At the current pace, China is doubling its GDP in less than a decade, is growing at over twice the US pace and 10 times as fast as Europe.
The 'China slowing' story belongs to an earlier period, and the world has already adapted to it. China's economic expansion has been so huge that, even with the lower growth rate, China's contribution to world economic growth in dollar terms is larger than in the double-digit period.
What about the future? Is China about to stumble just when it has the substantial windfall of lower global oil prices?
The just-released IMF World Economic Outlook Update sees China's growth slowing to 6.7% this year and 6.3% next year. This sharp downward revision helps to perpetuate the gloom. But we need some perspective here. If the pace of China's expansion continues at around 7% (plus or minus one percent), it will extend one of the great development success stories. We should even count it as a stunning success if the trend includes some temporary bumps on the way, as China sorts out its housing and finance sectors and carries out a rebalancing from investment towards consumption.
The proper criterion is whether China can avoid the sort of persistent under-performance seen, say, in Brazil (barely positive growth in recent years and negative this year). If Michael Pettis turns out to be even remotely right (he has bet that 'average growth in this decade will barely break 3%'), this should be acknowledged. Yet despite the feverish WSJ reporting, this outcome is looking less likely with each passing year.
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