The consequences of China’s growth model

China is a central part of the global economic system (17% of global GDP, 14% of world merchandise exports); it would be difficult for China to be a status quo power even if it wanted to be.  Even in previous, more geopolitically benign, periods, China’s rapid emergence into the global economic system led to widespread dislocation (as well as economic benefits): for example, the so-called ‘China shock’ on labour markets and specific geographies in the US.

Much of the recent attention on China’s economy has been its sluggish recovery from the pandemic.  But more importantly, China’s emerging growth model will have significant spillovers into the global economy as well as political and geopolitical implications. 

Under Mr Xi, China’s economic model combines mercantilism and industrialisation.  There is no high-level support for a policy shift to a consumption driven growth model of the type long recommended to China; this is regarded as welfarism.

Rather, China wants to be an industrial superpower.  It aims to dominate leading, sophisticated industrial categories while not giving up position in more basic industrial categories.  And there will be increasing import substitution, partly motivated by concerns about exposure to trade/investment/technology restrictions.  China generates ~30% of global manufacturing value added, and there are no indications that it wants to give that up. 

The full note is available at: https://davidskilling.substack.com/p/the-consequences-of-chinas-growth