The Chinese economy has several records to its credit. For two decades the dragon economy grew at a blistering pace of over 10%. No other developing economy has grown at such a high pace for such an extended period. China differs from other economies in several ways. It has followed an investment-driven economic model. The country's investments have accounted for about half of its gross domestic product (GDP). Household consumption, on the other hand, is merely one-third of GDP. In a normal economy, things are a bit different. For instance, it is practically impossible for an economy to productively invest over one-third of its GDP for a long time. And secondly, consumption generally accounts for two-thirds of a country's normal GDP.
The Chinese economy is now going through a paradigm shift. It is shifting from an investment-driven economy to a consumption-driven economy. But this transition is not going to be without upheavals. The growth has already slowed down from double-digit levels to about 7.5%. Shifting towards consumption requires developing the service sector. But this will result in slower economic growth. And this, in turn, could further intensify the growing social unrest in China. It's going to be a tightrope walk for Chinese policymakers.
The Chinese economy is now going through a paradigm shift. It is shifting from an investment-driven economy to a consumption-driven economy. But this transition is not going to be without upheavals. The growth has already slowed down from double-digit levels to about 7.5%. Shifting towards consumption requires developing the service sector. But this will result in slower economic growth. And this, in turn, could further intensify the growing social unrest in China. It's going to be a tightrope walk for Chinese policymakers.
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