Sunday, September 20, 2015

How Should We Think About China's Economy?

A lot of concerns have been raised about the slowdown in China's growth rate.  Many predict disaster for China's economy because it is different than our own.  This article, by the President of the Federal Reserve Bank of San Francisco, offers a more balanced view about the Chinese economy.  He argues that China cannot keep growing at 10% year because growth always slows down as nations become more prosperous.  Wages rise and their products become less competitive.  China is going through the process of shifting from an export led growth strategy to one that is more reliant on domestic consumption.  It is also moving away from a dependency upon manufacturing and it is following the path of other advanced economies towards a service oriented economy.  That process will take time, and China's growth rate will gradually move closer to that of more mature economies.  China will also manage that transition differently that other nations because its government is more active in managing the transition than nations with a more liberalized economy. 

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