Any appraisal of China's
prospects must begin by admitting that the Middle Kingdom is the most
astonishing development success story in the world today
China is enduring the sort of problems other countries can only dream of. Like everywhere else, GDP has been a tad disappointing of late – but that means a growth rate of 8.9%, according to figures released this week, rather than 9.1%. (By way of comparison, Britain's final-quarter output figures are out in a few days and could well record growth that disappears in the margin of error, or even show flat-out shrinkage.) Exports are rather under par, too: Beijing estimates the trade surplus dropped to about $160bn (Britain runs a persistent trade deficit). And the big worry is whether Beijing can check overheating to engineer a "soft landing" – as opposed to the crash that hit the west in 2008, whose tremors are still being felt.
That's not the whole story, of course. China's economy is also "unstable, unco-ordinated and ultimately unsustainable", a verdict delivered not by some capitalist running dog on a Canary Wharf trading floor, but by none other than premier Wen Jiabao. Nevertheless, any appraisal of China's prospects must begin by admitting that the Middle Kingdom is the most astonishing development success story in the world today, and that its three decades of 9%-plus growth have been achieved in the face of widespread scepticism from foreign observers.
Economic discussions of China usually range over three questions. First, what is its own outlook? Second, how will that affect the rest of the world? Before 2008, the global economy had two locomotives: the US and China. Now it has one. George Osborne's visit to Beijing this week is a reminder of how even the most free-market politicians have come to rely on China to pull the world out of a slump. News that the People's Republic has acquired a stake in Thames Water, an asset the cash-strapped British state disposed of long ago, underlines the point. The third and most interesting question of all is how will the biggest tiger economy's performance affect Beijing's status as an alternative to the tainted Washington model of prosperity?
Let's start with China's own outlook. The economy is almost bound to slow this year – the debate is over how far and fast. Changing economic gears will pose big challenges, with less reliance on exports in a sluggish world, and more on domestic consumption. It's a rebalancing act – the mirror image of the one Britain must perform. Making that primary task more difficult, the Communist party also declared last month that it wanted to puncture the housing bubble in Beijing, Shanghai and other east coast boom towns. Doubts about how Beijing can pull off both tasks at once has led some to predict a big crash over the next couple of years. Then again, China's collapse has been foretold many times since the early 80s.
If Beijing does succeed in keeping China growing, but at a slightly more moderate pace, what does this mean for the rest of the world? Sadly for Mr Osborne, the news is better for emerging markets than developed nations. As economist and China-watcher John Ross points out, over half of China's trade is with other developing economies. Moreover, this is the club that's doing all the growing: in the three years up to 2010, developing economies provided 78.6% of world growth. China is more likely to develop greater trade links with India, Brazil and Africa, rather than Britain and Europe. Developing countries can provide Chinese industry with all the natural resources and investment opportunities it needs. Little scope, then, for more business with the west.
Beijing does not provide the world with a fully articulated model like the Washington consensus. It does, however, provide a potent example of how growth can come from investing in new plant as opposed to the capitalist reliance on raising productivity; and it shows that this can be achieved with a finance and banking sector that is in state hands. Whatever 2012 holds, China will carry on posing an implicit challenge to the western way of business.