How sustainability is driving China’s next economic transformation

There was some good news for China’s economy this week, with first-quarter gross domestic product (GDP) figures better than expected. However, structural and cyclical issues persist, and the consequences of policy missteps cannot be stressed enough.

Accordingly, calls urging China to boost confidence and consumption are well placed. However, doing so without addressing the underlying issues is akin to treating the symptoms, not the cause, of an illness – to use a Chinese medicine analogy.

China’s previous high GDP growth model served its historical mission well, but it has now become the underlying cause of the current economic predicament. The “prescription” requires a painful transformation to a new sustainable development model.

Many Western narratives red-flag China’s economic situation when, in fact, these are the side-effects of the transformation China initiated in 2014 by ushering in a “new normal” and ditching high GDP targets.

China plays the long game, and an appreciation of its history and sociopolitical dynamics is essential for a proper assessment of its economy.

The last major cycle of change was China’s transformation from a state-planned to a market economy, which eradicated extreme poverty and delivered the “Chinese economic miracle”. However, this model also led to massive corruption, socio-economic imbalances and unrestrained environmental degradation.

However, problems persist. For example, more than 40 per cent of the attendees at a Goldman Sachs conference in Hong Kong in February said they believed China was “uninvestable”, according to a Financial Times article. Market reforms are required, but China only has just over 220 million individual stock investors, and there are other priorities such as