Martin Feldstein has some interesting reflections on China’s new strategic direction under leadership of President Xi Jinping , Premier Li Keqiang and Finance Minister Liu. He observers that recent appointments signals a shift that may be less favourite to slower growth which in turn would reduce demand for commodities :
Taken together, these appointments demonstrate the new Chinese leadership’s emphasis on pro-market reforms and a shift from heavy industry to greater reliance on consumption and services. That shift is likely to mean a slower rate of GDP growth than the annual rate of nearly 10% that China achieved during the last three decades. But a slowdown to 7% annual growth would still double China’s GDP over the next decade.
More consumption and less heavy industry will also reduce China’s demand for raw materials, dampening global commodity prices. Even more significant, shifting income from state-owned enterprises to middle-class workers and increasing consumer spending will reduce China’s enormous saving rate. Since a country’s current-account surplus is the difference between its national saving and its national investment, China’s current-account surplus is likely to continue to shrink in the coming years. That is consistent with the Five-Year Plan’s goal of basing GDP growth more on domestic demand and less on exports.
Since China’s external surplus is already down to less than 2% of GDP, a decline in domestic saving could result in China beginning to run a current-account deficit. In that case, China would no longer be a net buyer of foreign bonds and other assets. If China wanted to continue to invest in foreign businesses and natural resources, it would have to become a net seller of bonds from its portfolio.
I have previously touched on potential vulnerability to Zambia's economic growth of a Chinese slowdown here. What is interesting of course is that Xi Jinping appears to have propriotised Africa since he took power. Tanzania was his first foreign visit and of course our own President Sata has already made a state visit there. China clearly has Africa at the centre of its economic strategy, but Fieldstein is spot on the broader implications of a slow down. It is up to Zambia and other African countries to factor that in their plans.
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