No economy can grow at the rate of the China forever, it’s simply unfeasible and a slowdown is an inevitable result at some point. The growth story has been huge and some measure of rebalancing is not only inevitable it is desirable too. China has followed the tried and tested growth template pioneered by other Asian economies, Japan, South Korea and Taiwan are just a few examples. These countries were always described as ’tigers’ in global economic terms however China is much, much bigger than these.
The worry of course for the rest of the world is simply the scale of the Chinese economy now. The tigers had far less of an effect on the global markets than China did and many of these economies have suffered in the downturn particularly the Japanese. The issue in a world beset by recession is of course that all these growth stories were focused on exports. The extensive investment in manufacturing, education and infrastructure created the funnel to supply an export driven market.
This strategy raises huge amounts of foreign currency, which is essential to purchase the raw materials to supply the manufacturing plants. However this growth model is simply unsustainable in the current climate particularly due to heavy subsidisation required to manipulate exchange and interest rates, plus keeping wages low to minimize costs.
The problem is that the market for the goods China produces is falling, growth cannot come from outside any more whilst the recession hits it’s main markets – saturation point has been reached. The difficulty China has is moving to a new model, it needs to be genuinely competitive not just at the expense of it’s own people. Investment in infrastructure can help but the unused developments and white elephants strewn across China demonstrate that this is not the long term answer.
China faces many problems with being genuinely competitive in a global market. It’s difficult for entrepreneurs to prosper in such a tightly controlled and monitored society. Just taking the internet as an example – the infrastructure available should mean the country is a world leader. However this isn’t the case as the country is handicapped by surveillance, internet filtering and censorship.
The IT tools and infrastructure used by many global companies simply don’t work in China. Whilst individuals worry about the lack of online anonymity – see this for instance – secure proxy, especially in a heavily monitored network, companies have extensive difficulties in simply operating. The numerous stories of paid hackers and state sponsored industrial espionage also make many of the biggest brands wary of setting up at least on the Chinese mainland.
The restrictions that are put in place obviously are primarily targeted at the Chinese citizens themselves. But they too are becoming well used to bypassing these, by using technology freely available on the web. Take for instance accessing specific media sites, this video for example illustrates a method used by people to access Netflix a popular media streaming site.
These problems will severely hamper the Chinese economy, as it seeks to modify it’s model. The problem is that the World needs China to succeed to some extent, and in many ways Chinese domestic demand could be a great boost to Western economies too.