In Praise of China’s New Normal

BEIJING – China’s economy is, at long last, undergoing a rebalancing, with growth rates having declined from more than 10% before 2008 to roughly 7.5% today. Is this China’s “new normal,” or should the country anticipate even slower growth in the coming decade?

China’s rebalancing is apparent, first and foremost, in the export sector. Export growth has slowed from its 2001-2008 average of 29% annually to below 10%, making foreign demand a far less critical engine of growth.

Moreover, manufacturing employment and output, as a share of the total, began to decline last year. In fact, in the first half of this year, services accounted for more than half of total economic growth. It is no surprise, then, that China’s current-account surplus has shrunk rapidly, from its 2007 peak of more than 10% of GDP to about 2% of GDP today.

This rebalancing has helped to improve China’s income distribution. Indeed, in recent years, labor’s share of national income has been on the rise – a direct reflection of the decline in manufacturing and expansion in services.