China's growth adjustment: Moderation and structural changes

The recent slowdown in the Chinese economy is interpreted in two dimensions: a long-run, structural shift toward a moderation in China's earlier high growth pace, and a short-run, mainly cyclical, adjustment to the earlier economic overheating. Main causes of the long-run shift are export deceleration, rising wage compensation, and higher energy import dependence, which all tend to lead Chinese investment growth and economic growth to scale down now and in the future, though possibly continuing on a fairly high pace around 8 %. On the other hand, the short-run one is a correction process, often complicated by external shocks. When policy over-reacts, the process of growth moderation-the long-run shift-would be possibly delayed. A more prudent macroeconomic policy should help China to carry through the task of growth adjustment. The process also bears significant implications for structural changes and rebalancing: convergence between consumption growth and investment growth; convergence between import and export growths; convergence in economic growth between China's inland and coastal regions.