The degree of impact depends largely on the policies that Beijing chooses to implement. While China's leadership"”under both President Xi Jinping and his predecessor, Hu Jintao"”has made it clear that it understands the risks of rebalancing, the process won't be easy. Companies must be ready.

The reason for rebalancing is obvious. The sharp increases in investment that have driven China's rapid economic growth for the past 30 years are not sustainable, and consumers can't provide additional demand unless wealth is redistributed toward Chinese households. The most obvious consequence of rebalancing is that it will result in much slower growth over the medium term. While many economists now project that average annual economic growth will fall to between 5 and 7 percent a year during the next decade, expect it to slow even more, perhaps to 3 to 4 percent a year. In modern history, no country that has experienced an investment-driven growth "miracle" has avoided a slowdown (such as Japan's after 1990) that surprised even the pessimists, and it is hard to find good reasons to think China will be an exception.

If consumption is to grow enough as a source of demand to replace investment"”in other words, to force up household income as a share of GDP"”Beijing must reverse policies, such as keeping the currency undervalued and depressing interest rates, that for the past three decades have subsidized investment by constraining the growth of household income. The government must pursue such policies while reconciling the country's conflicting interests, including those of the powerful groups, sectors, and companies that have benefited the most from China's investment-intensive growth model, especially from access to artificially cheap credit. As a result, many businesses in China and around the world will thrive, while others will be forced to make wrenching changes.

Read Full Article


Keywords: international trade, global logistics, facility location, foreign direct investment, Chinese economy, logistics services, logistics & supply chain, supply chain management