CHINA’S SLOWER GROWTH

LEARNING FROM EXPERIENCE

China's economy is entering a period of slower growth and the government should heed the lessons of other countries

Liu Shijin

China Daily, January 6, 2012

China's economy has enjoyed an annual growth of 10 percent over the past 30 years, but how long can such high-speed growth last?

According to studies by the Development Research Center of the State Council, China's growth pattern is similar to that of Germany, which experienced a slowdown in the late 1960s, Japan, which experienced a slowdown in the early 1970s: and South Korea, which experienced a slowdown in the late 1990s. There are already signs emerging that China's growth rate will slow in the next few years.

First, infrastructure investment, the most important engine of growth, is declining as a proportion of total investment. In 2006, it was more than 30 percent, while it dropped to around 22 percent in 2011. As China's high growth rate is mainly driven by its huge investment in infrastructure, if infrastructure investment drops, growth rate will slow.

Second, in the last three years, the growth rate of the provinces and municipalities with good economic performance along the southeast coast, whose total GDP accounts for more than half of the national GDP, has lagged behind other regions.

Third, people are worried about potential risks in local governments' financing platforms and in the real estate market. To be more specific, people are concerned whether their investments in these areas will pay off. According to our research, the potential gains in these areas are not particularly great.

Taking all these signs into consideration, it seems the transition from high-speed growth to intermediate-speed growth may have already begun.

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