China’s Economy Is Slowing, and We Should All Be Thankful

And don't expect a pickup anytime soon

  • Share
  • Read Later

Like TIME on Facebook for more breaking news and current events from around the globe!

Jason Lee / Reuters

China's President Xi Jinping during a welcoming ceremony at the Great Hall of the People in Beijing on Nov. 13, 2013

Few statistics are more closely watched by policymakers, economists and businessmen from New York to Tokyo than China’s economic growth rate. What happens in the world’s second largest economy, after all, influences the market for everything from iron ore to automobiles to Prada bags, and companies from General Motors to Starbucks are counting on China to generate more and more of their future profits.

That’s why Monday’s announcement of yet another lackluster economic performance struck investors hard. China’s GDP grew 7.7% in 2013, roughly matching the pace in 2012. To Western eyes, where growth of 2% is considered an achievement these days, China’s numbers may still inspire awe and envy. But consider that China has routinely topped 10% growth a year since the 1980s. The recent patch of growth is the slowest the nation has experienced since the late 1990s. On the surface, that may appear a bad thing. China’s steady growth through the Great Recession helped prevent the entire global economy from slipping into an even more destructive downturn.

But in fact, we should all welcome a slower China. The fact is that the economy was starting to resemble a breakaway train, chugging toward that unfinished bridge just over the horizon. Debt has been piling up to dangerous levels, industry is burdened by excess capacity, and the financial sector has been taking on bigger risks as a result. The country’s growth model, led by heavy doses of investment in stuff like factories, roads and buildings, has begun to run out of steam, able to produce eye-popping growth rates only with greater and greater infusions of credit. Fears have been mounting that China could suffer a financial crisis like the one that tanked Wall Street in 2008. That would threaten the stability of the entire global economy.

China has to slow down — for its own good, and ours. To his immense credit, President Xi Jinping and his team have realized this. He has resisted the temptation to use the machinery of the state to pump up growth, as his predecessors had done. Instead, Xi has embarked on a renewed, forward-looking effort to liberalize China’s economy. In a bold reform package unveiled in November, Xi has committed the government to opening up financial markets, improving the management of inefficient state-owned enterprises and expanding the power of the private sector. If he holds to his promises, the Chinese economy could emerge (over time) healthier and more market-driven, which would lay the foundation for further growth.

Yet in the near to medium term, China’s growth rates are likely to remain muted. Xi’s reforms will cause a drastic change in the way the economy works, ­forcing the state’s banks and enterprises to become more commercially oriented and contend with greater competition. The economy will also undergo a process of “rebalancing,” ­reducing its reliance on investment for growth and shifting to a more consumption-driven model. All of this could cause a slowdown in growth. And if Xi fails to reform quickly or deeply enough, China’s current growth system will continue to sputter.

Either way, the 10% growth that was once considered the norm now looks like a relic of the past. The International Monetary Fund expects GDP growth to slow further in 2014, to 7.3%. Rarely has bad news sounded so good.

13 comments
criticalobserver
criticalobserver

Jim O'Neill of BRIC fame, puts it another way.  China creates another India every two years !!  So much for the so-called 'Slow Growth'.

criticalobserver
criticalobserver

In 2011, Michael Schuman predicted that India would overtake China as the premier emerging economy. It is, therefore, interesting to point out that China's GDP growth last year  is more than half of India's annual GDP

jcmorganjn
jcmorganjn

As a Chinese, I am really thankful, we have a true Leader like Xi Jinping. Unlike, the most useless Western Politician. You know. If you think Election as a process, at the end of the process, it should produce a capable Leader. By this standard, most of Western countries FAILS. check out this TED talk

http://www.youtube.com/watch?v=s0YjL9rZyR0

ysprefer
ysprefer

China's growth is water-injected, and the figures do not have any meaning; German has become a strong industrious country and world manufacturing center from the ruin of World War II, while the Africa has always been poor even if there is no major war to destruct it. We should seek more foundamental things, not just figures of GDP growth, such as, welcoming more freedom of creative thinking, encouraging young Chinese to seek knowledge and going their own expriments and practice their own ideas, to more strictly protect our environment, to make the society more just and moral-guilded, than just seek the GDP growth.

GDP growth on the sake of GDP growth only, is meanless, what is the use of billions of national treasures sleep in the cellar of central bank of China, in the form of paper, which called dollars, issued by a foreign government. It is only paper, have no values, do not worth to sacrifice the environment or happiness of leisure of our people. The direction of China's growth shall be directed into a morally honest sciety, that always hunger and seek the knowlege and self improvement of the people.

arvay
arvay

Can we trade in the clowns who "manage" our economy for this guy? I suspect he's have a somewhat different policy to those who crashed our economy in 2008.


An TIME, please fix this comments app, it takes forever to react to sign-in.

joshuak2077
joshuak2077

To consider the Economic  liberalization as the road to prosperity is short-minded: the Rule of Law in business and the "as it comes; as it goes" Economics so well used by China, whereas the "invisible hand" boost markets, improves consumption, improves the environment, and if weight which way to proceed, well the second one brings fruitful results and where the motion is there the investors go to... this is China.

WilfTarquin
WilfTarquin

How true are the statistics?

No one knows the situation in China except the Communist Party, and historically they've released the figures which looked best, not the ones which were true.


Also, I think people should remember that growth, in percentage, is easier the closer to the bottom you are. Going from 1 to 2 is an increase of 100%, an equal increase from 1000 to 1001 is an increase of just 0.1%. As China gets richer, the growth _in percent_ will slow down, by necessity.

JohnKovacich
JohnKovacich

any country would kill to have a growth of 7.7%

tiger-ye
tiger-ye

I hope the china's economy growth could slower,and the price of real estate could  decline

jefforsythe9
jefforsythe9

Do not let this article give you the impression that the blood-thirsty Chinese Communist Party has changed in any way. Only the leader has changed and he is just cleaning out the last gangster's henchmen so that he can put in his. The entire filthy CCP is run on corruption, brutality, brainwashing, torture and murder. Since1999, the heinous CCP has been attempting the genocide of the tens of millions of innocent Falun Gong practitioners by the use of torture, slavery, organ harvesting and murder. This is the true nature of the CCP. Thank you for your consideration.

ChinaLee
ChinaLee

China's 2013 GDP is $9.28 trillion.

China's 2012 GDP (from the IMF): $8.22 trillion

China's 2013 economic growth rate: 7.7% (from TIME)
China's 2013 inflation: 2.6% (from Firstpost)
China's 2013 currency appreciation: 2.6% (from The Wall Street Journal)

Calculation for China's 2013 GDP:

$8.22 trillion x 1.129 (e.g. 7.7%+2.6%+2.6%= 12.9% or 0.129) = $9.28 trillion