Transition in China
By Isaac Cohen*
The National People’s Congress of China, at the conclusion of its last meeting on March 5, confirmed the economic growth target of between 6.5 and 7 percent for 2016. This target amounts to almost half of the spectacular double digit growth rates, achieved during more than three decades and illustrates the magnitude and significance of China’s economic transition. From a model based on export led growth, mostly of manufactures, the Chinese economy is turning toward a model based on domestic consumption and services.
Among the main consequences for the world economy of this transition is a reduction in imports, which has affected mainly neighboring economies and commodity exporters from the rest of the world. Also revelatory of the slowdown, industrial production decreased to 5.1 percent in February, from 6.7 percent in January, while exports in February decreased 25.4 percent on a year on year basis, in part due to the New Year celebrations.
Additionally, several bouts of intense financial volatility have spilled over world financial markets. In 2015, stimulated by credit expansion, China’s stock markets soared beyond 100 percent, followed by a fall of 40 percent by the end of the year. Finally, a slight devaluation of the renminbi sent ripples across world markets. The last day of the Congress, at a press conference, Prime Minister Li Keqiang recognized the persistence of some downward risks.
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.