For the past couple of decades, the world has watched in awe as the Chinese economy galloped ahead. This country has been a major beneficiary, thanks to its ground-breaking free-trade pact with Beijing. Now, however, the juggernaut is slowing and the Chinese market has lost what seemed to be an insatiable appetite. Data released last week showed that economic growth slowed to 7.5 per cent in the June quarter, a figure that, while extremely buoyant in global terms, confirmed a downward trend. This was the cue for furrowed brows in many of the countries that lean heavily on the world's second-largest economy.
A large measure of comfort could, however, be derived from the fact that this unease was not replicated in Beijing. A spokesman for China's National Bureau of Statistics described the country's performance in the first half of this year as "generally stable" and within expectations. The optimistic response was telling. Reduced demand for Chinese exports in Europe and the United States and a crackdown on the overly fast expansion in bank lending are undoubtedly part of the reason for the slowdown.
But, equally, there is an air of deliberation about proceedings as the new Chinese leadership under President Xi Jinping seeks to make the country's growth more balanced between domestic consumption, investment and exports.
The need for this has escalated as successive leaders have chosen to essentially ignore one of the key vulnerabilities of China's breakneck growth. Uniformly, their reaction to any slowdown was a programme of debt-funded stimulus. Yet even a decade ago, it was apparent that the economy had become too heavily skewed towards investment, a situation arising, in part, from the Chinese practice of saving about a third of household income. The upshot has been that the growth drivers have been exports and investments. A greater emphasis on boosting consumer consumption and the elevation of the services sector are, therefore, the key ingredients of a long-term economic rebalancing aimed at providing slower but more sustainable growth.
The impact of the Chinese slowdown has been felt by the suppliers of industrial commodities, not least Australia's mineral exporters. That filters into the demand for this country's products across the Tasman. There is good reason, however, to believe the direct impact on this country will be less dramatic. Our biggest exports to China are milk powder, butter and cheese. The market for them should remain strong because of the growing middle-class market, which is numbered in the hundreds of millions. Even this country's log and wood products are shielded to some extent by their position at the cheaper end of the scale.
Retail sales are growing but more slowly than the Chinese leaders want. If this situation persists, the response will be reforms that seek to fulfil the aim of increased spending and a flourishing services sector. Obviously, exporters to China stand to benefit from a successful long-term shift to consumer-led expansion, just as Xi Jinping's overdue assault on corruption will also work to their advantage.
China's response to the latest growth figures suggests it is confident that it has the policy firepower to ensure the slowdown does not spiral out of control. Globally, much rides on it being able to surmount its vulnerabilities smoothly. The fragile United States recovery is particularly reliant on effective management by the new leaders in Beijing. Given that the value of New Zealand's exports to China has trebled to $6.1 billion in just four years, this country is also hardly a disinterested bystander.