The Chinese economy is undergoing important changes that will shape its future for the better.
These changes are generating a lower GDP growth rate and current account surplus, which has been the main focus of the media in recent months.
However, while this could be seen as a result of a general slowdown of the economy, it can also be interpreted as a transition to a new economic model that would ensure that the Chinese economy continues growing at high rates -although not as high as in the past- in the medium and long-term.
There is one big theme currently driving the changes in the Chinese economy, and this is the development of a large -and still rapidly growing- middle class as a result of years of economic growth.
While the overall effect will be largely positive, there are two negative short-term consequences that have caught the attention of observers worldwide: first, a slowdown in the growth of exports, due to a shift towards a more domestic-oriented economy and increased salaries that have put pressure on China's competitiveness and taking some manufacturing capacity to countries in South East Asia; alongside this slowdown, China is also experiencing problems in the labor markets, as unemployment in the manufacturing sector is not fully compensated by the growth of the service sector.
These changes are generating a lower GDP growth rate and current account surplus, which has been the main focus of the media in recent months.
However, while this could be seen as a result of a general slowdown of the economy, it can also be interpreted as a transition to a new economic model that would ensure that the Chinese economy continues growing at high rates -although not as high as in the past- in the medium and long-term.
There is one big theme currently driving the changes in the Chinese economy, and this is the development of a large -and still rapidly growing- middle class as a result of years of economic growth.
While the overall effect will be largely positive, there are two negative short-term consequences that have caught the attention of observers worldwide: first, a slowdown in the growth of exports, due to a shift towards a more domestic-oriented economy and increased salaries that have put pressure on China's competitiveness and taking some manufacturing capacity to countries in South East Asia; alongside this slowdown, China is also experiencing problems in the labor markets, as unemployment in the manufacturing sector is not fully compensated by the growth of the service sector.
Another consequence of the emergence of the middle class is the recent push towards internationalization, which is affecting the capital account -the other side of the current account.
On the corporate side, China is becoming the largest contributor of foreign direct investment worldwide. The need of these companies to diversify its revenues respond to their newly acquired know-how that they are now ready to export (in sectors such as infrastructure, for example) and new consumption needs of the population, including tourism and more sophisticated products that they need to bring or acquire abroad.
The internationalization is not restricted to companies; in fact, the large outflow of Chinese citizens via tourism or education is also becoming a major economic factor in these sectors. China is now the main source of tourists in Asia and is becoming so in Europe. In the education sector, China is also becoming the major source of university students in Europe and the US. This is another factor that has a negative impact on the capital account.
As mentioned recently in The Economist, "China's future lies with its shoppers, not its exporters, and services, income and consumption are resilient."
In this context, the Chinese economy is being reshaped, creating environment for a solid and sustained growth path in the years to come.
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