Even China can't maintain a double digit GDP growth

For years, China has relied on easily accessible credit, heavy manufacturing, investment in infrastructure and exports as keys to economic progress a combination that produced doubledigit annual growth rates for much of the past 30 years !owever, the sustainability of this socialist market economic model is coming into "uestion currently China#s economy grew $ % percent in the second "uarter of &0'3, compared with the same period a year earlier (he figure was in line with economists# expectations, but represented a progressive slowdown from $ $ percent gross domestic product growth in the first "uarter and $ ) percent in the final three months of &0'& The Long-Term View of the New Leadershi of China *hile this slowdown has been happening for over two years, it has been increasingly obvious of the new leadership that took the helm in +arch that they are serious about tolerating significantly slower growth for the foreseeable future in return for the longer-term gains of a more ,balanced economy(o a large degree, China#s recent cooling has been engineered by Chinese .overnment, who is trying to steer the economy towards expansion that is more productive and sustainable China#s aging population shrinking labor force, means that labor productivity has to be raised to make up for the shortfall /ising wages and a stronger currency have eroded China#s competitiveness and are undermining its status as the blue-collar factory of the world 0t the same time, demand in the key export markets of 1urope and the 2nited 3tates remains slack China's Economic !ebalancing and "uture #m lications China wants to increase the consumption share of its .45 and lower the investment share Current investment is about 6%7 of .45, and these high levels exist at the expense of domestic consumption which put a lot of constraints and led to a continued fall in the consumption share of .45 (his is sustainable as long as the investment was being directed into productive sectors 0n increasing .45 was also in favour of the household sector even though they were subsidi8ing the investment spree !owever, this development model has its limits 1xcess investment would lead to sub-standard investment and would result in a decreased rate of return (his eventually leads to a declining .45 growth rate unless the growth rate in consumption rises sufficiently to offset the falling investment levels 0nother thing that can help here is the increasing trade surplus (his situation is what is being played out in China presently (he investment boom has reached its limit and would decline hereon 2nfortunately to avoid a sharp decline in .45 growth rate, the growth in consumption would have to be much higher given the huge share of investment in China#s .45 *ith an increased focus on China#s trade surplus and weak external demand, the net exports component of the .45 might not come to China#s rescue 0t this point, China may even resort to competitive currency devaluation in pursuit of heating domestic consumption and economy