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Aruba, June 4, 2013 - The move from investment to consumption will drive some industries forward, while hampering others.
It is not enough for global businesses to know that in coming years China’s economy will move away from an overreliance on investment and toward more consumption. They also must know that the potential costs and benefits of rebalancing the world’s second-largest economy are high and will affect industries not only domestically but also around the world. 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, I 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.

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