China’s New Growth Order
In order to achieve sustainable, equitable, and innovative GDP growth, China needs a new, more sophisticated growth model – more like a “growth order.” With a more inclusive, long-term approach that emphasizes strong institutions and eliminates perverse incentives, China's leaders can foster a more balanced economy and society.
HONG KONG – Between 1978 and 2012, China’s GDP grew at an average annual rate of about 10% – from $341 billion to $8.3 trillion (at 2012 prices) – lifting more than 500 million Chinese out of poverty in the process. Much of this was due to an export-led industrialization and urbanization strategy that opened up new opportunities in the rapidly expanding cities, where labor, capital, technology, and infrastructure came together to form supply capacities for global markets. According to the McKinsey Global Institute, by 2025, 29 of the world’s 75 most dynamic cities will be in China.
But this urban-based, export-led growth model also created more challenges than it can now handle: property bubbles, traffic jams, pollution, unsustainable local government debt, land-related corruption, and social unrest related to unequal access to social welfare. As a result, a shift toward a new consumption-based growth model – one that emphasizes stability, inclusiveness, and sustainability – is at the top of China’s agenda. China is searching for a new “growth order” for its restlessly expanding cities.
The current economic-growth model considers the configuration of key factors of production – land, labor, capital, and total factor productivity (a measure of efficiency). But this narrow focus on output neglects the economy’s human dimension – that is, how growth affects ordinary Chinese citizens’ lives.