China enjoyed a growth rate of more than 10 per cent from 2000-10. But its economy is now in trouble. Yesterday’sMON official announcement that growth slowed to 7.7 per cent in the previous quarter is a sign that the era of double-digit expansion is over. The potential for infrastructure investment has contracted, returns on assets have fallen, export growth is slowing and overcapacity has soared. The old engine of growth is spluttering.

Furthermore, China has suffered from the global slowdown that followed the US financial crisis and the debt crisis in Europe. It is now a factory that is too big for the world market. Since 2009, the contribution of net exports to growth in gross domestic product has turned from significantly positive to negative – a telling development.

In other words, China is staring at the “middle-income trap”: the tendency for countries to stop growing quickly once they reach a certain level of annual income. Although optimists suggest China has a way to go before it falls into the trap, this is not convincing. A new source of growth is needed.