The burst in panic across markets when the Chinese economy had a slight hiccup underscores all that is wrong – and misses all that is right -- about looking at the one of the world’s strongest economies through the reactive eyes of what people think may happen and not what actually is happening.
After 30 years of strong and sometimes stratospheric growth, China’s economy today is being steered to focus on strengthening core fiscal foundations to ensure stability and sustainability
This is good for China and has the potential to be good for many other countries, including the United States.
The Chinese government has clearly decided to move from a predominantly manufacturing economy to a knowledge economy. That they can do this successfully is beyond doubt. Much of the brainpower behind the hi-tech boom centered in Silicon Valley in California has belonged to Chinese-Americans, reflecting in part a determined, consistent focus on motivation and entrepreneurship.
It is a part of a positive development that Congress – which properly watches China very closely – should be ready to thoughtfully monitor and, if appropriate, support, properly balanced by considerations of national and international security.
While China's annual economic growth rate (GDP) has slowed from double-digits in 2010 to about 7 percent, it remains well above the rest of the world, and in particular the paltry 2 percent growth rate of the U.S. and Europe. The glass may have ceased overflowing but it clearly is more than half-full.
China's maturing economy is shifting gears and moving into slower but high-quality growth, away from its previous export- and investment-driven model. Promised reforms suggest a new vision of China’s future as a nation increasingly attuned to market forces and open to replacing full throttle economic boom for sustainable growth, environmental concerns and controlling an unprecedented debt surge.
So why does that make markets nervous? Perhaps because it shows a style of adaptability and leadership rarely found in today’s economic environment.
These adjustments will enhance the ability of China to become an even more sustainable contributor to the world economy. They also have the potential to improve the prospects for collaboration with and investment in the United States – a potent prospect for linking the world’s two leading economies.
What is happening between China and Israel is a good example of this possibility.
Israel and China are engaged in a rapidly developing dance of mutual advantage, with increasing Chinese involvement in hi-tech trade, investment, joint ventures, acquisitions and in education. Most significant so far is the $500 million that Hong Kong billionaire Li Ka-Cheng is putting into an academic joint venture between a Chinese university and the Technion, Israel’s MIT, to fund a bi-national academic center devoted to engineering, information technology and bio-technology.
The Israelis are nobody’s fool. Their confidence in such economic, forward-looking opportunities with China is a message that Congress, the White House and U.S. business interests should keenly observe.
There is an increasing albeit grudging acceptance among some economists that “GDP for GDP’s sake” needs to give way to a more sustainable, environmentally sound method of progress, more in line with the reality of the 21st century interwoven world economy. By anchoring the new strategy on an economic pedestal that will ensure steady footing, China’s leaders have adopted a lower growth target in order to focus on executing much needed reforms.
A superficial fixation on China’s headline GDP growth persists, so that a 25% deceleration, to a 7-8 percent annual rate, is perceived as somehow heralding the end of the modern world’s greatest development story. This knee-jerk reaction presumes that China’s current slowdown is but a prelude to more growth disappointments to come, which is not the case.
In fact, the failure to fail will be as economically riveting as China's past madcap economic mushrooming that left heads spinning.
China aims to create 11 million jobs this year and not worry about GDP. Beijing will encourage competition, ease exchange rate controls and improve access to credit for productive businesses. Other planned steps include opening state-dominated industries to private investment, making banks more market-oriented and encouraging consumer spending.
The old way is unsustainable. The blueprint shows the Chinese government is ready to press ahead with substantive reforms. Take a moment to see where China has come from, then better appreciate how it plans to continue the journey.
The time is right to rebalance, reform and recast. Slower growth now could fuel faster growth in the future provided the transition isn't too abrupt. The results will raise the likelihood of steering China’s economy in a more positive, more enduring direction, with the potential to benefit much of the world.
Bailey is a lecturer and researcher at the Center for the Study of National Security, Haifa University in Israel. He is adjunct professor of Economic Statecraft at the Institute of World Politics in Washington, D.C. He was on the staff of the National Security Council in the Reagan White House and on the senior staff of the Office of the Director of National Intelligence.