Unbalanced growth in China inevitably prompts questions about the country’s economic strength. Even Premier Wen Jiaobao sees it as a problem, although he remains adamant that adjusting the exchange rate is not part of the solution; forcing Beijing to do so, he warned this week, would be “a disaster for the world”.

Investment as a share of gross domestic product is now well over 40 per cent, while private consumption has fallen to 36 per cent. Some observers believe that this investment- consumption imbalance can only lead to economic collapse; others see it is China’s underlying source of power. The truth is somewhere in-between: while there is nothing fundamentally wrong with the country’s economic strategy, China needs to move slowly towards more sustainable growth.

By definition, economic growth is driven by consumption, investment and net exports. No country has achieved rapid growth over extended periods with a consumption-driven approach. In China’s case – contrary to popular belief – net exports have accounted for only 10-15 per cent of growth over the past decade. Realistically, a country of China’s size could not have sustained double-digit growth for three decades without an unusually high investment rate.