China's economy is currently confronting both a downturn in its growth rate and a wide variety of structural adjustments. These are simultaneous and secular trends that can be expected to continue over the next decade and perhaps beyond. The questions are: how low will the GDP growth rate go until it reaches a new equilibrium, and how successful will China be in making the needed structural adjustments to facilitate another lengthy period of dynamic growth and creation of a fully developed economy? These interrelated questions will be central to understanding China's economic future. Maintaining high growth rates (of 6 percent or more) may, ironically, reflect relative failure -showing that China remains wedded to its old growth model and hence is not making the necessary structural adjustments to transition to the new growth model. Conversely, lower growth rates (3-5 percent) may indicate successful structural transformations and longer-term developmental stability.
While the performance of the economy will remain central to China's broader future, it is actually the relationship between economics and politics that will be the key. It is very doubtful that China will be able to successfully navigate its way through the complex thicket of needed structural adjustments in the economy without parallel political reforms. A variety of social pressures are also influencing both the economy and the political system, requiring far-reaching social reforms as well (see chapter 3 ). China's political system was a great facilitator of the first wave of economic reforms post-1978-spurring GDP growth twenty-six-fold over the past thirty-seven years-but now and into the future it may be the greatest single impediment to further decades of reform and growth (unless it changes). China is trying to create a modern economy with a premodern political system. China's economic future requires a very different kind of Chinese party-state than in the past-no longer an administrative, commandist, centralized, extractive, and dictatorial state. Rather, it will require a state that is more reactive, responsive, inclusive, facilitative, compromising, tolerant, transparent, and genuinely decentralized.
Without this fundamental switch in the way the Chinese party-state functions, China's economic reforms will stall and the macro economy will stagnate (relatively). This does not mean that the Chinese economy will crash, although the volatility and overall economic contraction experienced in 2015 caused some analysts to predict a hard landing. GDP growth officially fell to 7 percent during the first half of 2015, while total trade declined 6.9 percent. Some analysts believe GDP growth is actually 1 to 2 percentage points lower. In the years ahead it is not inconceivable that it may fall to 5 percent or less per annum. As noted above, this is not necessarily a bad thing, as it would indicate structural shifts in the economy away from fixed asset investment toward a more variegated growth model. Moreover, given the overall size of China, its population and macro-economic heft, even 3 to 5 percent growth in a $10-$15 trillion (it is $8.9 trillion at present) economy is nothing to sneer at, although a drop to this level would have significant international implications.
Whether expanding or contracting, as the world's second-largest national economy China will continue to have a major impact globally. China currently accounts for 16.4 percent of global GDP; it contributes about 35 percent of global growth; and it accounts for about 11 percent of global trade. China's economic footprint is now truly global, with its businesses investing and operating all over the world. 1 The scope and magnitude of China's economy thus has truly global implications. If the Chinese economy catches a cold, as it did during the summer of 2015, the virus quickly spreads inter