Fletcher in the News

Is There an Upside to a Slowing Chinese Economy? Prof. Michael Klein Explains

The Upside to a Slowing Chinese Economy: China is targeting its lowest growth rate since 2005. That's not necessarily a bad thing.

This week, markets were spooked by news that China is dialing back its economic growth, but the news very likely isn't as unequivocally bad as Wall Street seems to think.

Chinese Premier Wen Jiabao announced this week that his government is setting its target for growth at 7.5 percent this year, after having spent seven years with an 8 percent growth goal. The move is part of a broader shift in the Chinese economy, away from exports and toward greater domestic consumption, said Wen, as the nation looks to increase spending on its poorest citizens while maintaining fiscal restraint in other areas. Though the shift looks like a sign of a slowing economy working to keep its footing, China's new economic strategy could also make for a stronger global economy.

One key benefit from this shift could be seen in what is called "trade rebalancing," says Michael Klein, a professor at Tufts University's Fletcher School and a nonresident scholar at the Brookings Institution. As the export-heavy Chinese economy dials back its trade surpluses, other countries could benefit, along with the Chinese people.

"To have strong and sustained economic growth, you need countries that have been running trade deficits to move toward trade surplus, but also you need countries that have been running big trade surpluses [like China] to move toward balance, as well," says Klein.

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