Change of focus 

The data cited above suggests that economic growth in China is withstanding potential breaks on growth such as curbs on bank lending and government restrictions aimed at the property market and at enforcing energy and pollution targets.

With robust domestic demand and a degree of export growth, China's GDP is expected to expand by at least 9.4 percent in Q3 2010 and by about 9 percent in Q4 (see Chart 4). Yet although the world has recovered from the worst of the recession, a substantial global economic recovery (and vast external demand for Chinese goods) will be a gradual process in the coming years. Hence domestic consumption and investment in China will have to make up for a sluggish pace of growth in the global economy if it is to maintain rapid economic growth. Increasing domestic consumption as a driver of growth will require both a more manageable pace of growth (around 7-8 percent) as well as better "quality" growth. Such growth would focus more on increasing disposable income and spending on education, health care, social security and pensions so as to address the structural factors underpinning the high household saving rates prevalent in China.

Indeed, a new era in China's economic growth along these lines may well be at hand. Chinese policy makers are presently thrashing out the blueprint for China's next Five-Year Plan, the 12th, which will cover the period 2011 to 2015. The new plan will likely de-emphasize breakneck speed of growth and focus more on making incomes grow, expanding employment and limiting the damage to the environment. It will, it is hoped, be a huge step in the right direction – more details to follow in next month's edition of the Econometer.