By David Whitford editor-at-large
FORTUNE -- Cai Hongbin, dean of the Guanghua School of Management at Peking University, has noticed a pattern in the way people respond to the stiff challenges -- social, environmental, and economic -- facing modern China: "Those who come often to China are pretty optimistic. Those who rarely or never come say China is collapsing."
Cai, needless to say, is optimistic, as were most of the panelists who took part in a conversation about China's changing economy at the 2013 Fortune Global Forum Friday morning in Chengdu. But none underestimated the enormity of the challenge that lies ahead.
"What hits me right smack between the eyes is the same thing the Chinese government knows," said former U.S. Treasury Secretary and former Goldman Sachs (GS) CEO Hank Paulson. "The current growth model is running out of gas. They're going to need to reinvigorate reform, it's clear."
China's growth rate, while still robust by global standards, has slowed dramatically since 2010; it was 7.7% in the first quarter of 2013, down from recent double digits. China is "too reliant on state-led investment and infrastructure and manufacturing," Paulson continued. "Too reliant on exports. There's not enough domestic-led growth. It needs more from the services industry."
Dominic Barton, global managing director at McKinsey, said he's "bullish" nevertheless, based on what he called China's "underlying force of growth" -- rapidly expanding cities. McKinsey has long predicted that China's urban population will reach one billion by 2030. The number is a "projection," not a certainty, Barton allowed; and the flood from the countryside may in fact be slowing somewhat. But China is still just at "the end of the beginning" of its urban transformation, he maintained. "This thing will still move." (See more from McKinsey on China)
How that growth is accomplished, Paulson warned, will have serious environmental implications. China has already paid a steep price for prosperity in dirty air and dirty water -- serious problems for China, and potentially catastrophic for the rest of the world unless China can somehow stop building coal-fired power plants and otherwise lessen its reliance on fossil fuels.
Paulson applauded China's new leadership for "both understanding the importance of the private sector and the need for reform" generally. But he said the government needs to be more involved, not less, when it comes safeguarding the environment. "You need to have laws, and you need to enforce them," Paulson said, adding that that's hard to do at the local level when "local leaders are focused on driving growth."
Paulson's conclusion: "The good news is that expectations [of the new leadership] are high. The bad news is that it will be almost impossible to meet those expectations. They're strong leaders. They're going to need to be very strong."
The news that consumer spending growth is slowing in China isn't all bad. Just ask Burberry.
FORTUNE – Plenty of people were expecting an end to the China-led luxury boom last year, but as Burberry's latest sales report suggests, China's consumers are more resilient than many of us think.
On Wednesday, the British fashion house reported better-than-expected sales, thanks largely to strong demand in China and Hong Kong for handbags and the MORENin-Hai Tseng, Writer - Apr 18, 2013 5:00 AM ET
China is sliding further along the scale of chaotic financial systems, but is not yet in the danger zone.
By John Foley, Reuters Breakingviews
FORTUNE -- Will China have a financial crisis? And if so, would Chinese people be any worse off? The answers are not found in the country's rapidly rising levels of debt, but in the potential for chaos when things go wrong. China is sliding further along the MOREApr 9, 2013 10:39 AM ET
Lending has soared in China during the first months of this year. Arithmetic suggests it can't last.
By John Foley, Reuters Breakingviews
FORTUNE -- China began 2013 with the same old economic model. Growth for the first two months of the year was driven mainly by exports and real estate. The increase in construction appears to have been fueled by credit. The current trajectory can continue only by pumping ever more MOREMar 13, 2013 5:00 AM ET
The majority of China's new leaders grew up during the Cultural Revolution, laboring in factories and the poverty-stricken rural regions, so they have a deeper understanding of those who have been left behind during the country's economic boom.
By Wenguang Huang
FORTUNE -- A no-frills parliamentary session is just one of the palpable changes under China's new Communist Party leadership, which tries to project its "plain-speaking and pro-people" image.
In a move MOREMar 7, 2013 11:56 AM ET
Yes, China's growth is slowing. But the unfolding economic debacle in the developed world is wounding China, not killing it. It has plenty more room to grow.
By Bill Powell
FORTUNE -- Some of the last words I hear before nodding off to sleep most nights here in Shanghai are uttered by a pasty-faced guy in the United States, nattering on CNBC about how the sky is falling (economically speaking) in MOREJun 29, 2012 11:56 AM ET
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