China can’t grow like an emerging market forever


There’s no economic crisis in China. There is a slowdown. That can be a good thing.

Yes, China is the second-largest economy and deeply enmeshed in the planet’s commercial map. That’s all the more reason it needs to keep becoming a more normal economy, with a more mature pace of growth.

That will increasingly be driven by consumers and technology, and less by exports.

Beijing may have begun to accept that, as its economy becomes more normal, it will have normal vulnerability to business cycles, just like the other large economies.

That’s the best way to understand the People’s Bank of China’s cut in bank reserve requirements this week.

It may also explain how China wrestles with what to do about its currency, the yuan. The textbooks would argue that when authorities take steps to stimulate growth, a nation’s currency tends to weaken.

China has tilted toward easing, away from a preoccupation with curbing debt. The yuan has dropped and is down about 9% against the dollar in the past six months — notable, but less than the Indian rupee, Indonesian rupiah and South African rand, not to mention the Turkish lira and Argentine peso.

Given the slowdown and tariffs slapped on its exports, why isn’t China letting the currency soften some more? Because it’s not quite ready to be that normal.

Chinese officials also seem keen to avoid antagonising the US Treasury, for fear they get branded a currency manipulator.

US Treasury Secretary Steven Mnuchin told the Financial Times that he’s watching for signs of competitive devaluations.

That’s not the only risk: If investors start to fear that the currency is in a protracted decline, they would pull money from China and exacerbate downward pressure on the yuan.

So, Beijing is hedging — letting the currency drop, but wary of allowing it to go too far. As China’s capital markets develop, it really can’t be constrained by such optics.

The Organisation for Economic Cooperation and Development projected what the world might look like in 2060: China is the biggest kid on the block, but its workforce and industrial structure have matured.

Under that scenario, China is growing at a developed-world pace of about 1.8%.

Robert Kaplan, president of the US Federal Reserve Bank of Dallas and a former senior Goldman Sachs Inc executive in Asia, put it well this week in answer to a question at the Economic Club of New York: “The world has to get used to lower growth in China.”

The sooner we are all reconciled to a more normal China, the better. — Bloomberg

  • This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.