China’s Painful Structural Transformation

SHANGHAI – For more than a year, headlines worldwide have been pointing to a Chinese economic slowdown. But a closer look at regional dynamics within China tells a different story – one that is less about deceleration than changing gears.

According to China’s National Bureau of Statistics, the resource-rich province of Shanxi has suffered an economic slowdown, but the southwestern provinces of Chongqing and Guizhou have experienced vibrant growth. Hebei and three other northeastern provinces are feeling the effects of recession, but the heavy-industry economies of Tianjin, Shandong, and Jiangsu are booming.

After the 2008 financial crisis, when slower growth became the “new normal” for many countries, China began to accelerate its economic rebalancing by shifting the drivers of growth from manufacturing and exports toward goods and services for domestic consumption.

This transition has had far-reaching implications for the future dynamics of China’s economy. With its previous export strategy, the government’s main priority was to integrate domestic manufacturing operations into global production chains. Now, however, its aim is an economy that meets domestic consumers’ diverse demands, and it is the industries closely connected to those demands that are quickly expanding.