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A Slowdown’s Implications, Solutions

Jul 13, 2011

Will China's economy face a hard landing, or will a slowdown be within its control? Whatever the answer, analysts would agree that economic growth is bound to slow down. Yet the central government hasn't written any sound plans to prepare for it.

Thirty years of growth at breakneck speed has made China the world's second-largest economy. Fortunately – or unfortunately – it hasn't yet faced a real economic crisis. However, the economy is already showing signs of fatigue after years of growth driven by big government and high investments. If it's said that the global financial crisis brought down the curtains on an economic fairytale, China, too, will soon face a similar inevitability. In this case, the country may be facing a "Lewis turning point," when manufacturing competitiveness heads south as labor costs rise.

To be sure, China's prospects should not invite undue pessimism; the growth potential of its 1.3 billion person population is far from being exhausted. But still, the government should carry out reforms in politics, society and the economy as soon as possible. These could serve as a "breakwater" protecting it from a downturn. To do so, China must further open up to the world.

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