The world is used to China growing 10 percent, and the dominant view is that it can do so indefinitely. With boundless potential, China is today’s New Economy and anyone who disagrees just doesn’t get it.
And then you look at the fast-worsening state of the global economy and a jolt of reality sneaks into the storyline. Case in point: Most global investors in a new Bloomberg poll predict Chinese growth will slow to less than 5 percent by 2016. Twelve percent see such a slowdown within a year, and 47 percent said it will occur in two to five years.
Contrary to popular opinion, it may not be as bad as it sounds. In fact, it may just be what China needs.
First, the bearish case. In December 2010, Fitch Ratings performed a timely mind experiment. What might happen if Chinese growth slowed to half the pace sustained since the government began dismantling Mao Zedong’s communist economy three decades ago? The results weren't pretty.
A marked downshift in Chinese output, Fitch said, would quickly have negative consequences for sovereign and corporate credit risks of trading partners such as Australia, Hong Kong, Malaysia, Singapore, South Korea and Taiwan. Commodities markets would take a sizeable hit, as would industries such as auto making, chemicals, heavy manufacturing and steel. All export industries would be rocked. Market volatility would soar as China dumped hundreds of billions of dollars of U.S. Treasuries.
Yet to economists like Michael Pettis of Peking University, slowing markedly is exactly what China needs. China requires a speedy and successful shift away from exports to a household spending-led growth model. That would reduce the risks of higher unemployment as world growth slows and curtail the excess borrowing and investment imperiling China's future.
China is making scant progress on this shift because its export engine is still humming along, reducing the urgency for change. If an abrupt slowdown catalyzes officials in Beijing to act faster and more boldly, the end may justify the means.
(William Pesek is a Bloomberg View columnist.)