The Next Chinese Economy

China’s economy may be decelerating, but its prospects remain strong, with GDP possibly reaching $10 trillion in 2014. Once it weathers the current rebalancing, it could well be stronger than ever.

BEIJING – After more than 30 years of extraordinary growth, the Chinese economy is shifting onto a more conventional development path – and a difficult rebalancing is underway, affecting nearly every aspect of the economy.

For starters, China’s current-account surplus has shrunk from its 2007 peak of 10% of GDP to just over 2% last year – its lowest level in nine years. In the third quarter of 2014, China’s external surplus stood at $81.5 billion and its capital and financial account deficits amounted to $81.6 billion, reflecting a more stable balance of payments.

This shift can partly be explained by the fact that, over the last two years, developed countries have been pursuing re-industrialization to boost their trade competitiveness. In the United States, for example, manufacturing grew at an annual rate of 4.3%, on average, in 2011-2012, and growth in durable-goods manufacturing reached 8% – having risen from 4.1% and 5.7%, respectively, in 2002 and 2007. Indeed, America’s manufacturing industry has helped to drive its macroeconomic recovery.

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