The Post-China World - by Ruchir Sharma

The way the global economy begins a decade reveals little about how it will end. In 2000, the Anglo-Saxon economic model was ascendant and the tech revolution was sweeping the globe. Emerging nations were a mere sideshow to the great Wall Street carnival, attracting less than 5 percent of the money in global stock markets. A decade earlier, the spotlight was trained on Japan, a star that had redefined the global economic stage in the 1980s. As late as the 1992 U.S. presidential campaign, one candidate reviewed the performance this way: “The Cold War is over and Japan has won.” Today, Japan is widely viewed as a washout, and all admiring eyes are on the boom in China, a force so powerful it has lifted the performance of many other economies. Resource-rich countries like Brazil and Australia have achieved global economic acclaim, mainly by selling iron ore, copper, and other commodities to feed the construction spectacle in China. Many big-name investors believe the China boom is set to continue, driven by investment spending.

Now, however, evidence is mounting that China’s growth “miracle” is on the verge of a major slowdown, which could bring the 10 percent growth rate of recent decades down to 6 or 7 percent in coming years. Recent high-profile labor strikes have dramatically called into question the China model, built on cheap labor and exports. And the rate of growth in spending is about to slow, because there are only so many new highways, railways, and ports China can build, and because land and labor costs are rising sharply. Government targets for spending in all these areas are shrinking; the mainland already has more than 65,000 kilometers of highways, the second-largest network behind the United States’ 80,000-plus kilometers. Now, however, evidence is mounting that China’s growth “miracle” is on the verge of a major slowdown, which could bring the 10 percent growth rate of recent decades down to 6 or 7 percent in coming years. Recent high-profile labor strikes have dramatically called into question the China model, built on cheap labor and exports. And the rate of growth in spending is about to slow, because there are only so many new highways, railways, and ports China can build, and because land and labor costs are rising sharply. Government targets for spending in all these areas are shrinking; the mainland already has more than 65,000 kilometers of highways, the second-largest network behind the United States’ 80,000-plus kilometers.

The most popular television show these days is Woju, or “Snail’s Home,” which depicts the despair of average Chinese people amid spiraling apartment prices. To get developers to cut back prices, the government is cracking down hard, increasing minimum down-payment requirements and suspending lending for some new projects. Given that property constitutes a third of all investment spending in China, growth will inevitably slow.

For more from Ruchir Sharma on China - Newsweek