The Chinese economy is moving on, and so must America's
Stephen Roach says the days of Sino-US mutual dependency are nearing an end, as China strikes out on its own towards a consumer-led economy. And, if it is to prosper, the US must also find a new growth strategy
Once again, all eyes are on China. Emerging markets are being battered early this year, as perceptions of resilience have given way to fears of vulnerability. And hand-wringing over China is one of the major reasons.
Of course, US Federal Reserve tapering has also been a trigger. But the China factor looms equally large. Long-standing concerns about the dreaded hard landing in the Chinese economy have once again intensified. If China falls, goes the argument, reverberations to other emerging markets and the rest of the global economy will be quick to follow.
While generalisations are the norm in the throes of most crises, in the end, differentiation pays. Such has long been the case with China. China was Asia's most resilient economy during the wrenching pan-regional crisis of the late 1990s and it could turn out to be just as tough today. Yes, the Chinese economy is now slowing, but the growth downshift is not well understood. A slowdown is actually a welcome development.
There continues to be a superficial fixation on top-line Chinese gross domestic product growth - dwelling on a 10 per cent growth machine that has slowed into the 7 to 8 per cent zone. The knee-jerk reaction presumes that this downshift is but a prelude to more growth disappointments to come - especially in light of fears over a long-standing list of China disaster stories, from social unrest and environmental catastrophes to housing bubbles and shadow banking blow-ups.
While none of these concerns should be dismissed out of hand, they're not the source of the current slowdown. At work, instead, is a long-awaited rebalancing of the Chinese economy - a major shift from export- and investment-led growth to a model much more reliant on consumer spending and services. Indeed, last year, the Chinese services sector actually overtook the combined shares of manufacturing and construction as the largest segment in the economy.
Long dependent on 10 per cent Chinese growth, the US in particular and the world in general is not prepared for the slower growth that will emerge with an increasingly consumer- and services-led China.
China's export-led growth miracle couldn't have achieved its extraordinary success without the external demand from the American consumer. China also relied heavily on the US dollar to anchor its undervalued currency to boost export competitiveness.
