Economy more resilient than thought

Once again, the Chinese economy has defied the hand wringing of the nattering nabobs of negativism. After decelerating for six consecutive years, real GDP growth appears to be inching up this year. The 6.9 percent annualized increase just reported for the second quarter exceeds the 6.7 percent rise last year and is well above the consensus of international forecasters who, just a few months ago, expected growth to be closer to 6.5 percent this year, and to slow further, to 6 percent next year.

I have long argued that the fixation on headline GDP overlooks deeper issues shaping the China growth debate. That is because the Chinese economy is in the midst of an extraordinary structural transformation - with a manufacturing-led producer model giving way to an increasingly powerful services-led consumer model. To the extent that this implies a shift in the mix of GDP away from exceptionally rapid gains in investment and exports, toward relatively slower-growing internal private consumption, a slowdown in overall GDP growth is both inevitable and desirable. Perceptions of China's vulnerability need to be considered in this context.