China's Growth Model Challenged as Progress of Transition Seen Unlikely to be Fast or Smooth

Arlington, VA — July 1, 2009 — With amazing consistency, China has expanded at an annual growth rate of 10 percent over the past three decades en route to its emergence as the second largest economy in the world. Only in recent years, however, has it become more obvious that China's industry-led, capital intensive growth model, with high savings and investment rates, comes at a price. This is of concern to trade deficit countries like the United States because their own growth in the future is increasingly tied to China and other emerging markets.

A Manufacturers Alliance/MAPI report, "China's Future Growth: Savings, Investment and Its Rebalancing Goal," argues that despite the Chinese government's efforts to stimulate consumption and constrain investment spending, the country's savings-investment gap has widened further and its trade surplus has continued expanding. As a result, domestic consumption in China is at historically low levels and imports into China remain too weak to help stimulate the global economy, or to help the United States correct its unsustainable trade deficit.