The New Shape of China’s Economy

China’s leadership transition attracted global attention in 2012, and deservedly so, given the country’s global significance. But, more important, strategic transformations now underway seem certain to influence its future pattern of growth.

BEIJING – China’s leadership transition attracted global attention in 2012, and deservedly so, given the country’s global significance. But, more important, strategic transformations now underway seem certain to influence its future pattern of growth.

For three decades, the dividends from Deng Xiaoping’s initial decision to open China’s economy to market forces, and to the world, have fueled rapid growth. Until recently, the key was China’s vast supply of low-cost labor, which provided the foundation for the country’s export-oriented model.

Concentrated in coastal China, this model produced an uneven distribution of output and established a unique pattern of high savings and low consumption. Indeed, China’s savings rate of rose steadily following the onset of market reforms, from 38% of GDP in 1978 to 51% in 2007.

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