One of the most important economic stories of the era is unfolding in China, and every American should hope for a happy ending.

The world’s second-largest economy is slowing down from its 30-year dash. A formula based on exports, cheap credit, heavy manufacturing and infrastructure investment has run its course ― after, it should be noted, helping to lift hundreds of millions of people out of poverty.

China’s economy grew 7.5 percent in the second quarter this year, far below the double-digit gains of the recent past. Clued-in economists such as Zhiwei Zhang at Nomura predict that growth will fall below 7 percent in 2014.

When China slows, the world feels it. To an extent, business activity in the U.S., Europe and Japan will be constrained. That might sound like a problem, but it could turn out to be a big plus in the long run. Here’s why:

China is embarking on an ambitious plan to overhaul its giant economy and provide for sustainable growth in the future. Its leaders recognize that the Asian giant needs to be rebalanced so that consumer spending and domestic demand set the pace. China’s economy must consume more of what it produces. It needs an economy, in other words, more like ours.

To achieve that end, the country that gave us Mao Zedong’s communist revolution has to embrace free markets. It has to allow its currency to float more freely based on economic conditions. It has to allow its interest rates for loans and deposits to rise and fall. Protected sectors of its economy have to be opened. Any workable new formula will involve greater competition, and less state control.

There is no blueprint to follow. This isn’t like replicating an American factory, or copying a Chicago-style skyscraper. Beijing’s policy pronouncements so far have been broad and general: Chinese officials, for instance, have said they want to clamp down on unregulated lending, but also keep plenty of capital flowing.

The details will be tricky to implement, especially given a huge expansion in Chinese debt over the past five years. On Friday, China scrapped some controls over interest rates on bank lending. It was a modest step in the right direction.

A lot of Americans, egged on by U.S. pols, will be tempted to root against China. It is, after all, a rival on the world stage. A Pew Research Center survey conducted in 39 countries uncovered the common belief that China eventually will overtake the U.S. as the leading superpower. The survey, released Thursday, also showed that many Americans view China less favorably than they did just a couple of years ago. Around the world, China’s growing military strength raises alarms.

Keep in mind, however, the difficulties that would arise if China’s economy were to suffer a hard fall from its lofty heights. Those who wish for bank failures and economic stagnation to knock this rising power down to size fail to consider the damage that would be done to economies around the world, including ours. American companies, from General Motors to Wal-Mart, have much to gain if China can make a successful transition to a more market-driven, consumer-friendly economy.

So far, the drop in China’s growth rate has been a controlled descent. Here’s hoping for a smooth landing.

(Chicago Tribune)

(MCT Information Services)