China’s 2018 GDP ended up reaching 90 trillion Yuan (slightly over $13 trillion), a 6.6% YOY growth which represents the slowest pace since 1990. For 2019, the growth rate is estimated to be in the 6% to 6.5% zone.
While these percentages may seem impressive by Western standards, they are not as impressive if one were to factor in how much room there is to grow until China catches up to the developed world from a GDP Per Capita perspective.
So… is the Chinese economy slowing down?
The short answer is yes.
The longer answer, however, is that while the Chinese economic growth pace is indeed slowing down, it’s not necessarily a bad thing. This is because the multi-year economic growth status quo of “China makes, the world takes” is just not sustainable. It might have been just what the doctor ordered for a country that had a lot of catching up to do, economically speaking.
However, as of a certain point, the right balance between exporting and boosting internal consumption needs to be found. While there has been a significant increase in consumption as a share of China’s GDP since the low (slightly below 50%) of 2010, it is still below the values we see in highly developed countries.
Furthermore, despite major concerns about US – China trade imbalances being voiced by US authorities, China’s 2018 surplus with the United States was a record-breaking $323 billion one, 17% greater than the 2017 figure. The same situation is valid when it comes to China’s balance with the rest of the world. However, despite this fact, with exports as a share of GDP at almost half the record level of 36% experienced in 2016, China’s economy is shifting toward consumption, this much is certain.
Other metrics paint the exact same picture: a country that’s shifting toward consumption, albeit at a pace that’s slower than what its trading partners were hoping for. As yet another example, the gross savings rate as a share of GDP is also on the (very) high side in China, over two times greater than that of the United States.
All in all, the conclusion is fairly straightforward: yes, China’s economic growth rate is most definitely slowing down but there’s nothing gloomy and doomy about it. It’s simply a sign that the economy of China is maturing, becoming less dependent on exports and more reliant on internal consumption. As time passes, this is also likely to ease trade-related tensions with other nations but patience is the operative word.
For several decades, China needed impressive export-driven growth so as to gradually become a developed nation. At this point, however, that paradigm is just no longer feasible for two main reasons. On the one hand, the fact that an economy cannot grow in such a manner indefinitely and secondly, the fact that even if it could, trading partners would become more and more uneasy. As such, simple logic dictates that the current situation is both unavoidable and a positive development for those interested in the sustainability of China’s economic growth model.