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

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

The formal sessions played out predictably, placing great emphasis on the coming structural transformation of China s growth model a colossal shift from the all powerful export and investment led growth of the past 32 years to a more consumer led dynamic.

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.

A consumer led rebalancing addresses many of the tensions noted above.

From this perspective, there is good reason for optimism, especially given accelerated growth in China s services sector one of the key building blocks of a consumer led rebalancing.

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. The transformation reflects both necessity and design.

A rebalanced China can grow more slowly for one simple reason By drawing increased support from services led consumer demand, China s new model will embrace a more labor intensive growth recipe.

Is Export Led Growth Passé?

Annual growth in the consumer price index peaked at 6.5 in July 2011.

This favorable performance led private forecasters and government officials to predict continued strong growth in 2011, with higher production, employment, and incomes leading to further increases in consumer spending and a self sustaining recovery.

China s economy is caught in the crossfire of structural and cyclical nbsp headwinds. Structural pressures have nbsp arisen from the shift to a new model of services and consumer led growth, and cyclical pressures stem from nbsp a tough global environment that has nbsp put downward pressure on the old model of nbsp export and investment led growth.

First, a well articulated urbanization strategy has emerged as a key pillar of consumer led rebalancing.

So enduring weakness in US consumption implies pressure on the growth of export led developing economies. The good news is that will force them to embrace long overdue rebalancing strategies aimed at stimulating domestic consumer demand.

Led by strong Chinese growth, emerging markets stabilized.

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.

The rise in consumer spending was not, however, due to higher employment or faster income growth.

But these are impeding the consumer spending needed to boost economic activity and kick start growth.

Now is the time to implement the measures that will accelerate the transition to a more consumer led economy.

Over the last 18 quarters, annualized growth in real consumer demand has averaged a mere 0.7 , compared to a 3.6 growth trend in the decade before the crisis erupted. Never before has the American consumer been this weak for this long.

Many countries have relied for growth on US consumer spending and investments in outsourcing to supply those consumers.

A growth slowdown is hardly shocking for an export led economy.

Decomposition estimates of GDP expenditure growth in 2004 indicate that Egypt, Jordan and Yemen experienced consumption led growth.

China s export led economic model has reached its limits, and the transition to domestic led growth is intensifying internal frictions.

This has led some to think that India (and perhaps others) can take a different, service led path to growth.

First, services growth is beginning to tap a new source of labor income generation, the mainstay of consumer demand.

In emerging markets, slow growth in the advanced economies has shut down a traditional development path export led growth.

Third is growth led by economic restructuring and diversification into new products.

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

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

Lebanon and the Syrian Arab Republic experienced investment led growth in 2004.

India s growth experience suggests that a global service revolution rapid growth and poverty reduction led by services is now possible.

Consumer deleveraging is likely to persist for years to come, leaving the US increasingly desperate for new sources of growth.

Indonesia, for example, has experienced accelerating growth, with rising business and consumer confidence boosting investment to almost 33 of GDP.

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.

Over the last 18 quarters, annualized growth in real consumer demand has averaged a mere 0.7 , compared to a 3.6 growth trend in the decade before the crisis erupted.

That gradual decline led to gradual loss of concern about limits to growth.

Not this time. The record plunge in consumer demand during the Great Recession has been followed by persistently subpar consumption growth.

The rapid rise in saving has reduced consumer spending, slowing the pace of GDP growth in 2009 and in early 2010.

Warnings about irrational market exuberance were largely ignored, especially as US consumer spending helped fuel strong growth across the global economy.

This helps explain why the inflation rate, as measured by growth in the annual consumer price index, has remained stubbornly high.

Farther East, Japan is trying a new economic experiment to stop deflation, boost economic growth, and restore business and consumer confidence.

That is a weak growth trajectory by any standard likely to result in rising unemployment and further deterioration in consumer confidence.

But the viability of Deng s model is nearing its end, and China is now addicted to inefficient state led fixed investment and unsustainable export led growth, rather than domestic consumption, to generate jobs and growth.