An NYT piece discussing weak consumer demand in China told readers that:”Unless China starts giving its own people more spending power, some experts warn, the nation could gradually slip into the slow-growth malaise that now afflicts the United States, Europe and Japan. Already this year, China’s economic growth rate has begun to cool off.
‘This growth model is past its sell-by date,’ says Michael Pettis, a professor of finance at Peking University and senior associate at the Carnegie Endowment for International Peace. ‘If China is going to continue to grow, this system will have to change. They’re going to have to stop penalising households.'”
Actually, the slowing of growth was by design. China’s government has been trying to slow growth in an effort to stem inflation. The central bank has repeatedly raised banks’ reserve requirements in an effort to reduce lending. It is wrong to imply that this represents a crisis for China’s system, as the article implies.
It is only at the very end of a lengthy article that the piece mentions the impact of raising the value of China’s currency. This would allow for an increase in consumer consumer purchasing power as imports become cheaper. It would also reduce inflation.
While this would imply sectoral shifts — from export dependent sectors to sectors producing primarily for the domestic economy — China’s economy has undergone much larger shifts in the recent past, for example using a massive government stimulus to boost growth in 2009.
Read more posts on CEPR »