- The days of GDP growth of over 9% in China appear over. Growth of 7%-7.5% seems to be the "new normal"; the authorities now seem comfortable with growth rates that they recently viewed as unacceptably low.
- We see three elements at work in the restrained policy reaction: first, growth was bound to slow inevitably as China converges with the advanced economies; second, more leverage in the economy means that the growth versus a trade-off in financial stability is more fully in play; and third, a tighter labor market with higher wage growth means that slower GDP growth is now more politically palatable.
- While slower growth will make the Chinese economy more sustainable on some metrics, there is still a need to rotate the drivers of growth toward consumption, which has yet to happen.
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