Sunday, October 25, 2015

The Slower Growth Talking Point

Officials in China are working to lower expectations of economic growth. After years of promoting the ideal of 7 percent GDP growth year after year, statements now hint at the reduced goal of 6 percent growth for maybe four more years, followed by a more conventional 4 percent rate.

China’s 7 percent growth rate was possible only because it was replacing its own traditional business methods with business plans copied from the rest of the world. That’s an approach that can’t go on forever. What do you do after you’ve copied everything you can copy? If you are hopelessly optimistic, you try to copy the things you can’t copy, leading to widespread business failures and a crash. If you are more pragmatic, you copy the incremental improvements, but of course, that leads to a more incremental growth rate. In the end, China will have to lean more heavily on its own native ability to design business processes, and then it will be slowed down by the same resistance to change that the rest of the world contends with when it tries to grow.

In the short run, there remains the question of whether the economy in China is legitimately growing at all in the second half of this year. Talk of lower growth rates sets the stage for bringing the official figures more in line with what’s really going on.

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