(James Saft is a Reuters columnist. The opinions expressed are his own)
By James Saft
(Reuters) – Consumption is increasingly driving China’s economy, perhaps marking the country’s much-needed transition to a more sustainable model.
But even if China is moving away, slowly, from its old model based on saving, investing, building and exporting, it is important to realize that the change brings with it new uncertainty, risks and the potential for disappointing growth.
China’s economy grew 7.4 percent in the third quarter, down from 7.6 percent in the preceding three months and marking the seventh consecutive quarterly slowing in growth. Underlying figures, however, gave some cause for optimism, particularly a 14.2 percent rise in September retail sales, a rise of a full point from the month before.
In the first nine months of the year consumption contributed 55 percent of Chinese GDP growth, outpacing the share of investment, which accounted for 50.5 percent (net exports subtracted 5.5 percent).
That’s welcome news: economists have long fretted about China’s growth model, which relied on capital investment at home and, supported by an artificially cheap yuan, exports abroad. While that helped to underwrite a stunning run of growth, it also kept savings rates high and consumption at home relatively low. It also helped to facilitate a build-up of debt which leaves China structurally vulnerable and subject to asset and investment bubbles.