The year 2012 is the most important test for China in two decades. The growth downturn is not just a correction or even a cyclical downturn. It is the end to a two-decade-long, invest-and-export growth model. Shifting to a new growth model requires painful reforms. If China refuses to change, it could experience a lost decade.

China's economic slowdown is a good thing in the short term. It decreases waste, and with a shortage of blue collar labor, it carries low political risk.