China's new normal
- By Dan Steinbock
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E-mail China.org.cn, October 1, 2014
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More than a tune-up [By Zhai Haijun/China.org.cn] |
For months, China's economic performance has been grim, reflecting the shift to the "new normal."
July was not a good economic month in China, exports excepted. More signs of sluggishness came with the preliminary August manufacturing data. An array of indicators seem to reflect faltering growth, from industrial output and retail sales to electricity production, imports and government revenues.
The "new normal" is reflected by a sharp decline in credit, weak domestic investment demand and a third consecutive month of decline in housing sales. Consumer confidence lingers at its lowest level in three years, while the outlook for jobs is at its worst since February 2009.
What's going on?
The 1973 that came after 2008
For years before the global financial crisis of 2008 and 2009, the Chinese economy enjoyed strong double-digit growth, creating a sense that "good times" would last indefinitely. That's when I began to warn government officials, senior executives and think-tanks about eventual growth deceleration. The business cycles were strong, but eventually, a structural deceleration would ensue.
"Beware of 1973," I used to say. I explained how the advanced economies of the United States, Western Europe and Japan enjoyed their greatest growth spurts after World War II. In part, those good years were driven by the Marshall Plan and reconstruction after the devastating war. In part, these years of growth were also fueled by the inherent economic potential of these nations.
But in 1973, it all came to a sudden halt, thanks to the first major energy supply shock. Initially, most observers thought that, over time, growth would surely return to its pre-crisis levels. But that did not happen.
So when I warned Chinese audiences about 1973, I was trying to tell them that China's growth levels were stunning, but that they were ultimately unsustainable. At some point, deceleration would follow, typically through a crisis. Despite expectations that high growth would rematerialize, there would be no return to the old days.
What I described then is manifested in the current shift to the "new normal."
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