The Chinese growth juggernaut must go on, and for this reason alone the Chinese leadership in recent days has been busy taking some big decisions in a hurry. As is always the case in quick decision making - that is, without thinking things through in detail - some pay off but most end up backfiring. The history of China’s economy is that its structure is built around the presumption of very rapid growth.

Enterprises, many of them state-owned, hoard their earnings rather than return them to the public, which has stunted family incomes; at the same time, individual savings are high, in part because the social safety net is weak, so families accumulate cash, just in case. As a result, Chinese spending is lopsided, with very high rates of investment but a very low share of consumer demand in gross domestic product. This structure was fine till high economic growth offered sufficient investment opportunities, but now investment is running into significantly decreasing returns. More importantly, China is at the end of an era – the era of super-fast growth, made possible in large part by a vast migration of underemployed people from the countryside to the coastal cities. The reserve surplus labor is now dwindling, which means that growth must slow. However, instead of accepting this reality and then planning around it to devise a revised growth plan going forward, it seemed for a period that the Chinese leadership was somewhat panicking. Initially (starting a couple of months back) they tried to pump up demand by, in effect, force feeding the system with credit, including fostering a stock market boom. Such measures can work for a while, and all might have been well if big Chinese reforms were also moving fast enough. But they weren’t and the Chinese government soon realized the likely result in such needless interventions: the more the government tries to artificially control the stock market prices, the larger becomes the bubble, threatening to burst at any time.

Fortunately, it seems that since their last uncalled for intrusion in the stock market better sense seems have now prevailed. Lately, we are beginning to see that their most policy moves are based on sound economic reasoning and prudent market management practices:

Despite a lot of international pressure and negative posturing by the western financial houses China has been brave enough to devalue its currency by nearly 3%. This shows a clear resolve on part of the Chinese government that it is now primarily focusing on restoring the underlying competitiveness of the Chinese economy instead of looking at providing short-term stimulus. The move can turn out to be even more beneficial for China if in the coming days the global demand for its international currency (Renminbi) picks-up or remains stable, because this confidence would depict a far more mature level of international acceptance of the Chinese currency than what the west would like to presently believe. It is important to note here that China, for quite some time now, firmly believes and perhaps rightly so that such is already the case. With its phenomenal economic success its currency has also come of age and therefore its importance and convertibility as a global reserve currency should also be more widely recognized. Of late, China has speeded up the pace of RMB internationalization, capital account liberalization, exchange rate and interest rate liberalization, all of which are directed to help internationalize RMB and for it to be included in the Special Drawing Right basket within the next 12 months, in-turn also making RMB a global reserve currency.

Further, over the last few weeks, the Chinese economic leadership has sent out some very calming and positive signals to the current status quo masters of the global financial order. They have gone that extra mile to convince them that China’s move to establish the Asian Infrastructure Investment Bank (AIIB) is not based on any brewing rivalry or political maneuvering on its part of, but simply to meet Asia’s growing needs. In fact, contrary to the general opinion, there should in reality be no intense competition (or the feeling of an alternative setting) between the AIIB, the World Bank (WB) and the Asian Development Bank (ADB). There is today sufficient room for all players to operate simultaneously and to even complement each other. The ADB itself estimates Asia’s current capital needs at $800 billion a year in infrastructure spending, which single handedly is far beyond its scope. The AIIB will precisely be the institution that fills this investment gap; something that is consistent with Asia’s requirements, and does not in any way pose a challenge to Japan or the U.S!

Finally, better economic sense has prevailed in that the government is realizing that regardless of China’s huge wealth (accumulated over the last two and a half decades) the solution to regaining growth momentum only lies in enhanced global economic and trade cooperation. And it is in this context where its, “One Belt, One Road”, vision is now being pursued more aggressively than ever before. Its partners in this endeavor are also responding positively. While Chinese exports to markets heavily affected by the global recession, like the Euro-Zone, South America, etc, decreased by 8.4 percent, its corresponding year-on-year exports to the one belt, one road, partners instead increased by 1.90 percent, reaching US$295.77 billion, accounting for 27.6 percent of China’s total sales abroad. Not to mention here that the total volume of bilateral trade with these countries has now already reached US$485.37 billion in the first half of this fiscal year, accounting for 25.8 percent of China’s total trade volume during the period.

So what have we learned? China’s incredible growth wasn’t a mirage, and its economy remains a productive global powerhouse. The problems of transition to lower growth, however, are major, but then again we have known this for a while. The big news in the coming months is not going to be about the Chinese economy, but really about the competence and foresightedness of the Chinese economic leadership in how successfully they can manage this inevitable transition.