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China's Great Rebalancing Act

Author: Evan A. Feigenbaum
September 5, 2011
Business Standard

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For decades, China's blistering growth has depended on exports and investment. The country has become the world's workshop, lifting millions out of dire poverty. And for the first time in nearly two centuries, China has returned to a position of global power and influence.

But this growth model is no longer sustainable and its savvy leaders know it. They are committed to rebalancing the country's economy because their capital-intensive, export-oriented approach is delivering diminishing returns and threatens to become a major political vulnerability for the government.

Why is China's growth model delivering diminishing returns? The global economic crisis provided clear evidence that China's export-driven economy was vulnerable to dips in demand in the rest of the world. Meanwhile, its dependence on investment has introduced distortions and imbalances into the economy. China's rebalancing agenda is not merely about economics but, ultimately, the political viability of the Chinese system. Beijing has delivered economic prosperity to many Chinese citizens. But those very successes have yielded numerous problems which could undermine the regime's legitimacy if left unattended.

In a comprehensive new report on the future of China's political economy, “China's Great Rebalancing Act”, my colleagues and I at Eurasia Group examined the maladies that confront Chinese leaders and the solutions they have prescribed to remedy them.

Their blueprint is the 12th Five-Year Plan, a set of strategic goals and binding economic targets through which they aim to alter China's macroeconomic landscape in far-reaching ways, with effects likely to be felt for a decade to come.

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