China’s New Growth Order

HONG KONG – Between 1978 and 2012, China’s GDP grew at an average annual rate of about 10% – from $341 billion to $8.3 trillion (at 2012 prices) – lifting more than 500 million Chinese out of poverty in the process. Much of this was due to an export-led industrialization and urbanization strategy that opened up new opportunities in the rapidly expanding cities, where labor, capital, technology, and infrastructure came together to form supply capacities for global markets. According to the McKinsey Global Institute, by 2025, .

But this urban-based, export-led growth model also created more challenges than it can now handle: property bubbles, traffic jams, pollution, unsustainable local government debt, land-related corruption, and social unrest related to unequal access to social welfare. As a result, a shift toward a new consumption-based growth model – one that emphasizes stability, inclusiveness, and sustainability – is at the top of China’s agenda. China is searching for a new growth order for its restlessly expanding cities.

The current economic-growth model considers the configuration of key factors of production – land, labor, capital, and total factor productivity (a measure of efficiency). But this narrow focus on output neglects the economy’s human dimension – that is, how growth affects ordinary Chinese citizens’ lives.

A growth order, by contrast, implies an emphasis on the configuration of sociopolitical and economic institutions – including norms, procedures, laws, and enforcement mechanisms – to achieve social objectives, such as improved living standards, a healthier natural environment, and a harmonious and innovative society.

The growth order’s stability will depend on institutionalized and effective coordination between the state, the market, and society – a major challenge, given the divergent interests within and among these groups. But, more important, much of the growth order’s effectiveness will depend on the relationship between the central and local governments in the delivery of public services for the market.

Indeed, contrary to popular belief outside China, the Chinese state is not monolithic; it is a highly complex bureaucracy with many layers of government and quasi-government institutions that do not always conform to central directives. The central government is in charge of national or systemic interests, deploying legal, regulatory, and broad monetary and fiscal policies to achieve its ends. But the state interacts with private enterprises, individuals, and civil society mainly through local governments and local offices of national regulatory agencies.

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