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Who Will Win as China's Economy Changes?

Author: Evan A. Feigenbaum
July 25, 2011
Business Standard

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China has unsettled its neighbours with naval displays and diplomatic spats. But could erstwhile Asian strategic rivals end up as big winners from China's economic success?

In one sense, at least, Asian economies are already winning from Chinese growth — slack global demand has meant that China increasingly powers the growth of nearly every major economy in Asia.

But the question increasingly matters in another sense, as well: Chinese leaders are committed to rebalancing at least some elements of their country's economy. And while that will mean a more competitive and powerful China, it will also create new opportunities for those countries in Asia that get manufacturing and investment policies right.

Why the change? China is approaching the upper limit of its existing growth model. It has emerged from the global crisis earlier and stronger than nearly any other major economy. But China's leaders are hardly complacent about their country's future economic path. To the contrary, despite remarkable successes, Premier Wen Jiabao has repeatedly called the current model – which relies disproportionately on exports and fixed-asset investment – “unbalanced, unstable, uncoordinated and unsustainable”.

China produces much but consumes little. The creation and perpetuation of its production-intensive economic model owe much to inefficient capital allocation. Few Chinese are reaping the windfalls of China's growth, and those who are benefiting do so at the expense of the many. Vast regional disparities mean wide gaps in living standards and quality of life. And China's investment-intensive growth model has exacted heavy environmental and energy costs.

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