The United States is likely to have a different problem with consumer led growth in China.

In China, November s Third Plenum of the Communist Party Central Committee will show whether China is serious about reforms aimed at shifting from investment led to consumption led growth.

In other words, rather than shifting from investment led to consumer led growth, China appears to be continuing along its investment led growth track.

But if exports continue to grow in the absence of consumption led import growth, distortions occur and the trade surplus and foreign reserves increase.

Domestic demand led growth will be a more reliable strategy than export led growth.

There were no surprises in the basic thrust of the strategy a structural shift in China s investment and export led growth model toward a more balanced consumer based and services led economy.

Like Southern Europe, the US economy must move away from the consumption housing led growth model of the last decade.

Catalyzing Consumption and Balancing Growth

Some within the Chinese Communist Party leadership will support plans to engineer a shift from export led growth to a model based on domestic consumption.

At long last, China s senior leadership has endorsed a raft of reforms that could impel the economy s shift from reliance on exports to consumption led growth.

Seduced by China s spectacular growth, the region shifted from US to China centric export growth.

The hard truth is that the flip side of the consumption led growth model that prevailed prior to the crisis has been deficient investment, particularly on the public sector side.

The broad outlines of this transformation are well known a shift from export and investment led growth to an economic structure that draws greater support from domestic private consumption.

Is Export Led Growth Passé?

Reckless lending is undermining efficient allocation of capital and preventing China from drawing a line under the investment and export led growth model of the past three decades and basing future growth more on domestic consumption.

But slower growth in China can continue to sustain development only if the economy s structure shifts from external toward internal demand, from manufacturing toward services, and from resource intensive to resource light growth.

There were no surprises in the basic thrust of the strategy a structural shift in China s investment and export led growth model toward a more balanced consumer based and services led economy. The transformation reflects both necessity and design.

If China can successfully rebalance its economy and shift to consumption based growth, its trading partners could benefit enormously from a huge retail market.

The new service economy emphasizes human interaction more than individualistic consumption.

BEIJING China s 12th Five Year Plan calls for a shift in the country s economic model from export led growth toward greater reliance on domestic demand, particularly household consumption.

The lesson is clear export led growth is the way to go.

In an optimal world, the surpluses of countries pursuing export led growth would be willingly matched by the deficits of those pursuing debt led growth.

As we heard repeatedly during the Congress, China s leadership reckons that its biggest policy challenge in the coming years will be the shift from export led growth to an economic model based more firmly on domestic consumption.

Domestic demand led growth will be a more reliable strategy than export led growth. That means that countries with a large domestic market and a prosperous middle class will have an important advantage.

A shift to services led growth and an innovations based development strategy were highlighted.

No wonder domestic consumption cannot grow in a manner commensurate with GDP.

But exchange rates do affect the pattern of growth, and it is in China s own interest to restructure and move away from high dependence on export led growth.

I call today s growth pattern the business as usual option the smart technology growth pattern, by contrast, represents the sustainable development option.

As a result, there are now major questions about the sustenance of China's long powerful export led growth model.

Worse still, economic growth based on exports of natural resources has proved unsustainable.

Lack of robust credit growth will hamper private consumption and investment spending.

China also needs to shift from its highly extensive (resource consuming) growth strategy to a more intensive development path.

To revive growth in the short run, India must improve supply, which means shifting from consumption to investment.

Since then, China has aggressively pursued a fast growth, export, and investment heavy model of economic development.

Nor has domestic consumption been sufficiently expanded, leaving economic growth overly dependent on exports and foreign investment.

Most important, export led growth must give way to domestic economic drivers.

Policies aimed at ensuring export led growth also include export subsidies and barriers to imports.

In rapidly developing nations, demand for energy intense foods, like meat, is growing, increasing the total amount of fossil fuels used.

This East Asian savings glut enabled a debt fuelled consumption glut in the US, Britain, and much of the Western world.

Under these conditions, export led growth by major economies is a threat to the world economy.

Reserve accumulation was also a by product of China s deliberate currency undervaluation to promote export led growth strategy.

After all, export led growth policies can succeed only if other countries are willing to run deficits.

Half of India s growth has come from private consumption, and less than 10 from external demand by contrast, 65 of China s real GDP growth comes from exports, and only 25 from private consumption.

Growth that relies on capital inflows or commodity booms tends to be short lived.

But Chinese officials worry that the shift from investment to consumption, and from manufacturing to services, will mean slower growth.