The fourth consideration is both more fundamental and more complex. China is facing a difficult economic restructuring. Aside from the recent export slowdown, Beijing is well aware that it can neither sustain its past pace of export growth nor rely any more on exports as the economy's sole engine of growth. In the past 20 years, Chinese policy makers note, China's share of the global market has risen from a negligible number to some 12.5%.
Since the country cannot hope to redouble this gain, Beijing increasingly has turned to domestic development as a replacement for exports or rather as an additional engine of growth. China looks especially to enhance its consumer sector, which still amounts to only 40% of the economy (compared with 70% in the United States, for instance).
The expectation is that such an enhancement will balance the economy and buy domestic peace by allowing income and wealth to spread more thoroughly through the economy. Part of China's massive infrastructure spending aims to serve this need.
But there is no mistaking that domestic development naturally proceeds less rapidly than export-led growth. If the pace of expansion looks less impressive, the shift should strengthen the economy overall and leave it more stable, making the feared hard landing less likely, not more so.
Some who fear for China's economic future go deeper still and reference the country's difficult demographic reality. This is a matter of concern. Because the country has imposed a one-child policy on families for the last 30 years, the flow of new, young entrants to the work force has slowed and will continue to do so in coming years. This trend cannot help but hold back the pace of overall economic growth.
But, if there is legitimate reason for concern, it would be a mistake to read too much into this problem too soon. The legacy of what was an extremely youthful population still leaves China with a greater relative abundance of young workers than the United States, for instance, and certainly than Europe and Japan. China today still has almost nine people of working age for each person over 65 years old, compared with just over five for the United States and just under three for Japan. Even by 2020, according to United Nations estimates, China will still have almost six people of working age for each person over 65. The United States will have fewer than four and Japan will have barely two.
It is a developing economic constraint to be sure, and will in time become severe. Yet it has little place in an assessment of the next 12 to 18 months, or even the next five years.
Against such a backdrop, there can be little doubt that China will grow at a slowed pace—next year for cyclical reasons, and longer-term for structural and demographic reasons. But the hard-landing scenario looks increasingly remote.
Figures on manufacturing have already begun to pick up, as have measures of consumer spending. Many of the great multinationals operating in China, including General Motors and Caterpillar of the United States and Rio Tinto of Australia, have reported that China's firming economy warrants increased levels of investment. It looks as though China will meet the official expectation of 7.5% to 8.5% annualized real GDP growth over the coming 12 to 18 months.
The great potential for domestic development suggests that China can sustain growth in excess of 6.5% to 7% a year for a long time before demographic considerations come into play. While all these expectations—short, intermediate, and longer term—fall far short of past real growth rates of 10% to 12% a year, investors and business people need to keep in mind that this anticipated pace still exceeds that expected in the world's developed economies by a wide margin. Most definitely, China seems to be having a much softer landing than popular fears had suggested.
Milton Ezrati is senior economist and market strategist for Lord Abbett & Co.
and an affiliate of the Center for the Study of Human Capital at the State University
of New York at Buffalo. His most recent book, Thirty Tomorrows, linking demographics and globalization, will come out this year from Thomas Dunne Books of St. Martin's Press.
