MANY OF THE WORLD'S ECONOMIES aren’t growing as quickly as they were up until five years ago, with China a prime example. But Jeffrey Frankel, James W. Harpel Professor of Capital Formation and Growth, argues in a new article that the slowdowns were inevitable, and are not necessarily indicative of any particular systematic dysfunction.
“Globalization and Chinese Growth: Ends of Trends?” is published as part of the Harvard Kennedy School Faculty Research Working Paper series.
“Breathless reports in 2014 that the Chinese economy had overtaken the US economy as the world’s largest (measured by Purchasing Power Parity) were followed rapidly in 2015 by breathless reports that its economy was failing. That China has slowed down from past growth rates of 10% to a more moderate rate of 7% or lower should not have come as a surprise. It is part of a natural process of long-term convergence and involves a ‘rebalancing’ of the economy from manufacturing into services that is desirable, even if it means a loss of export markets for some others,” Frankel writes. “The open question is whether the Chinese transition to a more moderate and sustainable growth path will take the form of a hard landing or a soft landing.”
The slowdown of economic growth in China “is likely to be permanent,” Frankel contests. “It was never likely that double-digit growth rates would be sustained for a fourth decade.”
Despite the slowdown, Frankel argues that “Global trade will continue to grow in the ‘new normal,’ and perhaps faster than GDP [and that] China will continue to grow, and probably faster than the rest of the world.”