China’s Growth Model Faces Challenges, Says Industry Group

(Industry Week – Adrienne Selko)

MAPI says China's low domestic consumption coupled with low import levels won't help stimulate the global economy, or help the U.S. correct its unsustainable trade deficit.

With amazing consistency, China has expanded at an annual growth rate of 10% over the past three decades en route to its emergence as the second largest economy in the world. Only in recent years, however, has it become more obvious that China’s industry-led, capital intensive growth model with high savings and investment rates comes at a price.

This is of concern to trade deficit countries like the U.S. because their own growth in the future is increasingly tied to China and other emerging markets, explains the Manufacturers Alliance/MAPI group.

In its report, "China's Future Growth: Savings, Investment, and Its Rebalancing Goal" the group argues that despite the government's efforts to stimulate consumption and constrain investment spending, China's savings-investment gap has widened further and its trade surplus has continued expanding. As a result, domestic consumption in China is at historically low levels and imports into China remain too weak to help stimulate the global economy, or to help the U.S. correct its unsustainable trade deficit. Read more here.