In my view, this is a ‘must read’ article for anyone interested in how China will impact their own countries and lives in the foreseeable future. It complements another recent article - http://chindia-alert.org/2013/09/11/reading-li-keqiangs-tea-leaves-at-the-world-economic-forum/
Reuters: “Long after concerns about tightening U.S. monetary policy have faded, a more profound issue will still dog global policymakers: how to handle the second stage of China’s economic revolution.
The first phase, industrialization, shook the world. Commodity-producing countries boomed as they fed China’s endless appetite for natural resources. Six of the 10 fastest-growing economies last decade were in Africa.
China’s flood of keenly priced manufactured goods hollowed out jobs in advanced and emerging nations alike but also helped cap inflation and made an array of consumer goods affordable for tens of millions of people for the first time.
The second stage of China’s development promises to be no less momentous.
Consumption will take over the growth baton from investment. Services will grow as a share of the economy, while industry shrinks. Commodity-intensive mass manufacturing based on cheap labor will give way to greener, cleaner ways of making things.
More of the value added by a better-educated, more productive workforce harnessing new technologies will stay in China instead of going to multinational companies.
That’s the plan, anyway.
China will remain the most powerful engine of global growth for the next couple of decades, but it will no longer be just processing imported raw materials and components for re-export, said Li Jian with the Chinese Academy of International Trade and Economic Cooperation, the Commerce Ministry‘s think tank.
“China has realized that it cannot blindly rely on investment and exports as the main drivers of growth. So China’s demand will be more balanced,” Li said.
To show it is serious about more sustainable growth, China deliberately engineered the first-half slowdown that unnerved markets in order to address these longer-term structural priorities, according to President Xi Jinping.
Xi and the other new leaders of China’s Communist Party are expected to approve a blueprint for reform at a plenum in November. Overcoming vested interests opposed to the new economic model will be a stern test of their credibility.
A lot is at stake for the global economy too.
Philip Schellekens, an economist with the World Bank in Washington, said the importance of the reforms Beijing intends to make cannot be overstated. As China changes, so will the rest of the world.
“The structural transformations that we think are going to happen in China over the next two decades will matter far more than the near-term vulnerabilities,” he said.
On balance, commodity-exporting developing economies stand to be affected more than rich nations – an obvious exception being Australia, where the end of a China-driven mining boom was a big issue in Saturday’s election. China buys a third of Australia’s exports.
Commodity demand should stay strong, especially as China’s capital stock per head is only 10 percent that of America’s and urbanization has a long way to go. But rebalancing will favor commodities more closely tied to consumption than to investment.
Economists fret that too many emerging markets spent their windfalls from surging raw material prices instead of sloughing them into infrastructure and other investment. As a result, growth is slowing now that China’s demand is softening.
China’s appetite for agricultural commodities and energy should hold up well but Capital Economics, a London consultancy, said it was concerned about large metals exporters that have not saved their extra income and so are running current account deficits.
It singled out South Africa, Zambia, Chile and Peru as being particularly vulnerable.