Worried about China's economy? Join the chorus. Its doleful dirge has been going on for well over a year. The focus has been on internal woes: alarming housing excesses, bloated business inventories, excessive productive capacity, concerns about financial sector issues and the like. There hasn't been as much talk about China's trade situation, but more of its failure to conclusively shift to internal, consumption-led growth. So, is slower growth a fixture, a Chinese 'new normal'?
China's recent expansion yells out 'yes'. Gone are the pre-crisis days, when anything less than 9 per cent real GDP growth was a slow year. Post-crisis, 2010 was the only double-digit year, and that was fed by an extraordinary outpouring of global and China-sized stimulus. The last two years have seen sub-8-per cent activity, and messaging is conditioning markets to expect little more. After all, China is running headlong into the 'ageing' effects of its one-child policy. It has also been too dependent on fiscal and monetary stimulus, which is fading, more or less permanently. And then there's slower expected growth in the rest of the world. With this, most are settling in to a new vision of China's expected near- and long-term growth path.
How short our collective memories are. Is this the same China that just 7 years ago was unstoppable, gunning for top spot in global GDP rankings, spurring both fear and admiration as it rushed to create enough superstructure to support its breakneck growth and ascendancy? Are we to believe that the world's growth woes are significant enough to engineer a u-turn, or at least a significant trajectory-shift in China's experience?
Much depends on one's view of the world. If the rest of the planet is indeed mired in a sluggish, low-growth new normal, then perhaps little else can be expected for China. After all, it remains a trade-dependent economy. Sure, it is maturing, but it is still far from the per capita income levels that would enable it to be truly self-sustaining. But if better can be expected for the rest of the world, then China's forecast changes radically.
To understand this, it's important to see how international trade activity rocked the Chinese economy through the crisis years. In the 2004-07 period, international trade amounted to almost 70 per cent of China's GDP. In two years, it crashed to just under 50 per cent -- a true crisis for a trading nation. China filled that gap with very creative policy programs. In the aftermath, trade's share of Chinese output did not budge. In 2013, it was still just 48 per cent of China's GDP.
The static share makes sense. China still depends on OECD markets for a large share of its sales. Back in the heyday years, 80 per cent of finished export goods in the East- and Southeast Asian economies were headed for large, developed markets. Their sluggish recovery has limited demand for China's goods. But their nascent comeback could revive China's fortunes significantly. If global revival simply lifts the share of trade in China just half-way back to its previous peak, trade growth will again see pre-crisis double-digit increases for a number of years. And at that point, I am sure that the discourse on the economy will revert more to pre-crisis chatter than the current dull dirge.
If so, China is again faced with the pre-crisis problems that were all the rage. First, how does it, and the rest of the world, cope with the demands of the 40 million odd new entrants to its middle class every year? And what if these really become a Western-style consumer class? Third, how does China sustainably manage its growth? And fourth, with an ageing population, how does China creatively expand its global labour force? These and other questions would take us back to a global growth discussion that at least would be refreshing, and at best, have us all re-focused on how to manage future growth, not stagnation. It hardly seems possible, given the half-decade of world angst about the latter. But it wouldn't be the first time we were taken unawares by a resumption of the tried-and-true growth cycle.
The bottom line? Recent history has shocked many into a wholesale re-think of expectations for China. It's understandable, but it has happened under extraordinary global circumstances. If recent conditions are about to take a turn for the better, then it's better not to be surprised by a China comeback.
ALSO ON HUFFPOST:
