The old stories are the best stories, but sometimes you have to pull back and skip over some of the details. 5 years ago the glossy newsweeklies were gushing about a China that would leapfrog the west. Now they are talking about the China that will outlast the west. 

The engine of China’s growth is about to get throttled down significantly, and when it comes back to smooth ground it’s going to be running a lot cooler than double digit GDP growth.  Look for 7.5 to be the new 9.  No more tax breaks for FDI, no more SEZs – except for the new ones that will pop up deep inside the country.  People will talk about the ‘good old days’ of the Wild Wild East.  Yeah – some of you are about to become ‘nostalgia guy’ without even knowing it.  There’ll be plenty of opportunities left in China, but first mover advantage is pretty much played out.  It’s organized and citified now – like all great gold rushes after they peak. 

But 7.something sure beats 1.something – and that may be the middle side of average for US GDP growth for a few years yet.  I’m no economist, but I’m figuring that

A) We were spending off our curve in the first place,

B) New taxes will be need to pay for the bailout and basic services 

C) Interest rates will rise (to service debt for the bailout)  

D) Regulation will intensify

E) Greater international influence will be brought to bear on US regulators.

All of this stuff is going to drive down our natural GDP.  (Natural GDP is the rough equilibrium rate of speed that the economy would move at over long periods of normal conditions with no external shocks.  It never, ever happens, but it tells you what normal might be.  Right now it’s around 3%.  Clearly, though, the number itself doesn’t matter.  The direction matters.  Our Natural GDP just got a lot more constrained.  US business, in the midterm (10 years), will have much less economic activity than it did in 2007.  That means fewer buyers, fewer sellers, and fewer middlemen.  If that group includes you, it’s time for some deep thinking.

That’s what brings us back to those gleaming Chinese towers on the cover of Time.   Well, they’re going to be looking a little tarnished and gritty in the near future, but they’ll still be there.  China will only be taking a couple of quick jabs from this.  They’ll fall to a low of 5 or 6% growth during their worst quarter and come quickly back up to 7 or 8% — where it will stay.  Their world isn’t going to fall apart.   They’ll be back – slower and more expensive.  But that’s ok with Beijing.  NY and Europe, however, are going to look like very, very expensive places to operate – especially if there are no more customers.  

China won’t outperform the West – it will drop less than the west does, and eventually get back on a stable, albeit slower, path forward.   We’re all going down the same hole together, but China is only going to fall half as far.    And once we all get up, the US and Europe will be limping and broken.  China will only be banged up a little.  

China is set to become one of the world’s last big buyers of high value-added goods and services.  They are going to achieve this in a very traditional Chinese fashion:  quietly outlasting all the other players who were too busy exhausting their own resources to notice.

US owners and partners with a little downtime on their hands should glance over their preliminary marketing plan for China – and make sure they have one.  They’re going to need one.