Premier Wen Jiabao has lowered China’s 2012 growth target to 7.5%. The move affects Australia, Brazil, the Middle East and others by implying that the recent expansion surge is drawing to a close as the country’s leaders reach a slow-growth comfort zone.
In other words, China has no intention to continue stimulating the economy, but will instead allow for a swing away from export-based growth and state-led investment. The reduced investments in infrastructure, exports and power generation will likely have a significant impact on China’s trading partners. Oil, steel and other building material imports will slow significantly as well.
“I think China’s supercyle for commodities is behind us,” said Dong Tao of Credit Suisse.
Though the change may seem daunting at first, there are some undeniable benefits both for China and for the rest of the world. Increased consumer spending will have a positive effect on the environment as pollution lessens, while jobs increase and imports of U.S. and Europe-provided goods, like software, tourism and entertainment, are likely to grow as well.
“Accelerating the transformation of the pattern of economic development…is both a long-term task and our most pressing task at present,” Jiabao said at the National People’s Congress. “Domestically, it has become more urgent but also more difficult…to alleviate the problem of unbalanced, uncoordinated and unsustainable development,” he added.
Standard Chartered analyst Stephen Green believes the move reveals an appetite for change, quoting "imperfect reforms are to be prefered to a crisis caused by no reforms." He explained that while government policy is one of the causes, the reconstruction comes from demographics as well. The number of China's workers is expected to drop in upcoming years, resulting in a boost in wages.
"People are getting paid more," Green said. "That's the main driver of rebalancing the economy so it's consumption led."D
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