Excerpts
''China crash syndrome once again.Never mind the recurring false alarms over the past couple of decades. This time is different, argues the chorus of China skeptics".
"Yes, China’s economy has slowed. While the crisis-battered West could only dream of matching the 7.5% annual GDP growth rate that China’sNational Bureau of Statistics reported for the second quarter of 2013, it certainly does represent an appreciable slowdown from the 10% growth trend recorded from 1980 to 2010".
But the skeptics are not only worried by a possible hard landing,they also concerned over excessive debt and
fears of a fragile banking system,and about the property bubble. And the lack of meaningful progress to change
the export led and fixed investment model, to one driven by private consumption.
"The rebalancing of any economy – a major structural transformation in the sources of output growth – can hardly be expected to occur overnight. It takes strategy, time, and determination to pull it off. China has an ample supply of all three".
Moreover, the gap between growth in services and growth in manufacturing and construction widened over the first two quarters of 2013, following annual gains of 8.1% in both sectors in 2012. These developments – first convergence, and now faster services growth – stand in sharp contrast with earlier trends.
Indeed, from 1980 to 2011, growth in services output averaged 8.9% per year, fully 2.7 percentage points less than the combined growth of 11.6% in manufacturing and construction over the same period.
The recent inversion of this relationship suggests that the structure of Chinese growth is starting to tilt toward services.
In 2011, Chinese services generated 30% more jobs per unit of output than did manufacturing and construction. This means that the Chinese economy can achieve its all-important labor-absorption objectives – employment, urbanization, and poverty reduction – with much slower GDP growth than in the past. In other words, a 7-8% growth trajectory in an increasingly services-led economy can hit the same labor-absorption targets that required 10% growth under China’s previous model.
That is good news for three reasons. First, services growth is beginning to tap a new source of labor-income generation, the mainstay of consumer demand. Second, greater reliance on services allows China to settle into a lower and more sustainable growth trajectory.
And, third, growth in the embryonic services sector, which currently accounts for just 43% of the country’s GDP, broadens China’s economic base, creating a significant opportunity to reduce income inequality.
Far from crashing, the Chinese economy is at a pivotal point. The wheels of rebalancing are turning. While that is not showing up in the composition of final demand (at least not yet), the shift from manufacturing and construction toward services is a far more meaningful indicator at this stage in the transformation.
Slowly but surely, the next China is coming into focus. China doubters in the West have misread the Chinese economy’s vital signs once again".
Stephen Roach
Former Chairman of
Morgan Stanley Asia
Project Syndicate
''China crash syndrome once again.Never mind the recurring false alarms over the past couple of decades. This time is different, argues the chorus of China skeptics".
"Yes, China’s economy has slowed. While the crisis-battered West could only dream of matching the 7.5% annual GDP growth rate that China’sNational Bureau of Statistics reported for the second quarter of 2013, it certainly does represent an appreciable slowdown from the 10% growth trend recorded from 1980 to 2010".
But the skeptics are not only worried by a possible hard landing,they also concerned over excessive debt and
fears of a fragile banking system,and about the property bubble. And the lack of meaningful progress to change
the export led and fixed investment model, to one driven by private consumption.
"The rebalancing of any economy – a major structural transformation in the sources of output growth – can hardly be expected to occur overnight. It takes strategy, time, and determination to pull it off. China has an ample supply of all three".
"It is far too early to expect significant shifts in the major sources of aggregate demand. For now, it is much more important to examine trends in the potential determinants of Chinese consumption.
From this perspective, there is good reason for optimism, especially given accelerated growth in China’s services sector – one of the key building blocks of a consumer-led rebalancing. In the first half of 2013, services output ( expanded by 8.3% year on year – markedly faster than the combined 7.6% growth of manufacturing and construction.
Moreover, the gap between growth in services and growth in manufacturing and construction widened over the first two quarters of 2013, following annual gains of 8.1% in both sectors in 2012. These developments – first convergence, and now faster services growth – stand in sharp contrast with earlier trends.
Indeed, from 1980 to 2011, growth in services output averaged 8.9% per year, fully 2.7 percentage points less than the combined growth of 11.6% in manufacturing and construction over the same period.
The recent inversion of this relationship suggests that the structure of Chinese growth is starting to tilt toward services.
In 2011, Chinese services generated 30% more jobs per unit of output than did manufacturing and construction. This means that the Chinese economy can achieve its all-important labor-absorption objectives – employment, urbanization, and poverty reduction – with much slower GDP growth than in the past. In other words, a 7-8% growth trajectory in an increasingly services-led economy can hit the same labor-absorption targets that required 10% growth under China’s previous model.
That is good news for three reasons. First, services growth is beginning to tap a new source of labor-income generation, the mainstay of consumer demand. Second, greater reliance on services allows China to settle into a lower and more sustainable growth trajectory.
And, third, growth in the embryonic services sector, which currently accounts for just 43% of the country’s GDP, broadens China’s economic base, creating a significant opportunity to reduce income inequality.
Far from crashing, the Chinese economy is at a pivotal point. The wheels of rebalancing are turning. While that is not showing up in the composition of final demand (at least not yet), the shift from manufacturing and construction toward services is a far more meaningful indicator at this stage in the transformation.
Slowly but surely, the next China is coming into focus. China doubters in the West have misread the Chinese economy’s vital signs once again".
Stephen Roach
Former Chairman of
Morgan Stanley Asia
Project Syndicate
