China: An Historic Mobilisation Ends

Abstract

China changed everything, but what will its waning contribution now deliver? China’s rapid growth, the key feature of globalisation, went through three main phases in its experiment of ‘socialism with Chinese characteristics’:

• First, from 1978, reforms to agriculture and creating special economic zones;

• Second, from 1992, some privatisation and integration into the global economy;

• Third, from 2000, full entry into world trading system and then assuming a key role after the Great Financial Crisis.

China’s economic success depended on many factors: a strong historical social and cultural background, political single-mindedness, a flexible and competent labour force, fed by internal migration, capital controls, developing satisfactory infrastructure and absorption of Western technological know-how. But China’s greatest contribution to global growth is now past. Its working age population is now shrinking, while the ranks of the old expand. Growth from inflows of foreign firms, capital and expertise will slow, and will incrementally have to be replaced by internal exploitation of efficiencies and innovation. Goodhart and Pradhan doubt that over-indebtedness will be that much of a problem, or that consumption-led growth will be much more than simply a mathematical rebalancing. Instead, they propose that:

• China will cease to be a major disinflationary force.

• Savings will fall and the current account move into deficit.

• Growth will depend on home-made innovation.