It was March 2007, China's legislature was wrapping up its annual session and Premier Wen Jiabao was about to speak at the closing press conference.
It was March 2007, China’s legislature was wrapping up its annual session and Premier Wen Jiabao was about to speak at the closing press conference. The economy was seeing double-digit growth, a consumer class was rising and Beijing was soon hosting its first Olympics — there was every reason for a savvy politician to boast.
But that’s not what the Chinese premier did.
« There are structural problems, » Wen said ominously into a microphone, « which are causing unsteady, unbalanced, uncoordinated and unsustainable development. »
« It was a shocking speech at the time, » says Peking University economist Michael Pettis.
Shocking because by 2007, many of the world’s top economists, turned off by the growing financial crisis in the United States, were falling in love with China’s economic growth model.
« Most economists insisted that the Chinese growth model was perfectly fine, there were no problems with it, it was the best thing since sliced spread, » remembers Pettis. « So when Wen Jiabao announced that imbalances were very deep and had become a problem for China, that obviously resolved the debate very, very quickly. »
Fast-forward to this month: China’s government has made the controversial move to abolish presidential term limits. While that’s dismayed outside observers who hoped the country would become more liberal, there is a flip side to the debate. According to some economics experts, this critical reform could give President Xi Jinping time he needs to correct the problems Premier Wen was warning about — and that could actually turn out to be a good thing for the global economy.
Lopsided growth
China has spent the better part of the last two decades on a building spree. It’s constructed the world’s largest high-speed rail network, dozens of subway systems, highways and entire cities. This investment-led model has driven a historic economic expansion, but it’s also resulted in a dangerously lopsided economy. The growth has disproportionately benefited the elite in and around the government instead of everyday Chinese workers, many of whom still don’t make enough to enter the consumer class.
President Xi’s administration spent much of its first term attempting to rebalance the economy toward a more sustainable, consumer-led growth model.
