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China’s Economic Identity Crisis

BEIJING – Unlike the West, where former US President George H.W. Bush once mockingly referred to “the vision thing,” China takes economic strategy very seriously. That much was clear at the recent China Development Forum (CDF) in Beijing, an important gathering held each year since 2000, immediately after the conclusion of the annual National People’s Congress.

Originally conceived by former Premier Zhu Rongji – one of modern China’s most strategy-minded reformers – the CDF quickly became a high-level platform for engagement between senior Chinese policymakers and an international lineup of academics, foreign officials, and business leaders. It is, in essence, an intellectual stress test – forcing Chinese leaders to defend newly formulated strategies and policies before a tough and seasoned audience of outside experts.

It’s not always easy to distill a singular message from an event like this, especially as the CDF, once a small intimate gathering, has morphed into a Davos-like extravaganza of some 50 sessions spread out over three days. But, having attended 16 of the 17 meetings (I missed the first one), my sense is that CDF 2016 was especially rich in its strategic implications for China’s daunting economic challenges. And, as I saw it, the elephant in the room was the core identity of China’s economic model – a producer-led versus a consumer-led model.

China’s 30-year development miracle – 10% real annual GDP growth from 1980 to 2010 – was all about the country’s prowess as the ultimate producer. Led by manufacturing and construction, China enjoyed a uniquely powerful impetus. In 1980, exports and investment collectively accounted for 41% of Chinese GDP; by 2010, the combined share was 75%. The export portion increased the most – by nearly six-fold, from 6% in 1980 to a pre-crisis peak of 35% in 2007 – as new capacity and infrastructure, low-cost labor, and accession to the World Trade Organization made China the world’s greatest beneficiary of accelerating globalization and surging trade flows.