Chart of the Day: China, an economic miracle no more

China, the economic miracle, will soon be China the normal economy. Maybe not boring, but no longer a phenomenon.

That’s the conclusion of a major study from Barclays.

‘We believe that the Chinese economy is at the beginning of an important transition from economic “miracle” to normal development,' the authors of the Equity Gilt study say.

This is a good thing. The shaky Chinese economy is slowing and needs to switch from an investment- and export-led model to one based on the spending of its many residents.

Barclays' own calculations show this transition, or ‘rebalancing’, is happening perhaps faster than appreciated, at least better than always-contested official numbers show. ‘Consumption has indeed begun to improve and rebalancing has already started,’ they conclude.

China consumption share of GDP: Official and adjusted, 1997-2010 (%)

‘To make this a sustained long-term trend, more changes are needed, especially in the areas of liberalisation of interest rates and exchange rates and reform of state-owned enterprises and government behavior.’

You’ll hear similar messages from other economists and fund managers, but the point is that Barclays reckon the long-awaited process of economic rebalancing in the world's second largest economy has already begun.

This is important for investors; Chinese consumer spending power will be an important area for investors to focus on. ‘The great wave of consumption upgrading could become a key investment theme, with rapidly expanding import markets for consumer goods, especially at the mid and high end,’ Barclays says.

They point to data showing that better-off Chinese households are increasing the amount they spend on ‘household facilities and services, transport and communications, recreation, culture and education, and other items (mainly financial services).’

For any China-watchers fearful that their pastime is about to get a bit dull, what with China becoming ‘normal’, the Barclays study adds a warning: a major downturn in the Chinese economy might be the cause of the next global recession.