Slowing growth and economic rebalancing in China

Recent data show that the Chinese economy grew by 7.7 per cent in 2013, slightly ahead of official projections but unchanged from the previous year’s growth – which had been China’s slowest since 1999. Guidance from China’s State Statistical Bureau indicates that future annual GDP growth rates will be in the region of 7–8 per cent. The slowdown in China’s economic growth has been accompanied by policies that have sought to shift the economy from its base in labour-intensive export-oriented manufacturing towards a focus on talent and domestic consumption. Efforts to rebalance China’s economy are neither new nor unique, but what is interesting is the willingness of Chinese officials to tolerate lower rates of growth in order to rebalance the economy. Many developed economies have also sought to rebalance their economies in the aftermath of the global financial crisis. What distinguishes China’s efforts from these is that instead of reorienting towards manufacturing, China’s challenge is one of how to raise the share of services in the economy as part of the transition from a middle-to a high-income economy. However, a continued reliance on investment-driven growth, weak fiscal capacity at the local level, and the emergence of a large shadow banking system all threaten to derail this agenda