The major changes to China’s economic model

China’s economic model has changed profoundly and abruptly in a few years. This transformation of the Chinese economy contains the following main characteristics: Demand is shifting from industry to services, in addition to which there have been significant rises in production costs and in product sophistication and technological progress. All this has significant implications: the labour market is polarising and inequality is rising; it is becoming necessary to offshore Chinese production to other Asian countries and Africa (hence the Belt and Road Initiative); China is becoming a closed economy and is no longer either the world’s factory or its growth engine; China’s p opulation is ageing significant ly and the country is nearing the technological frontier ( high levels of automation and research spending). This is leading growth to slow, leading the government to want to stimulate growth. The population ageing is also pushing down the savings rate, reducing China’s external surplus and ending its role as lender to t he rest of the world (in particular the United States). These changes to the Chinese economy are taking place against the backdrop of strict political control over society. The result is a n idiosyncratic model: a high degree of political control with a central role for the Communist Party , combined with economic liberalism (tolerance of gaping inequalities, much private business creation) and at the same time close relationships between companies and the state and a desire to promote innovation and rise up the value chain. This mix of state control and liberalism is surprising. The question is whether slowing growth may jeopardise its acceptance.