1/10
This is the argument that Yu Yongding and a few others have been making, but I don't think that this is what most economic policymakers and policy advisors believe. In a recent debate Yu described his view as a minority view.
This is the argument that Yu Yongding and a few others have been making, but I don't think that this is what most economic policymakers and policy advisors believe. In a recent debate Yu described his view as a minority view.
https://twitter.com/M_C_Klein/status/1392918014610214914
2/10
As for “Consumption is never a source of growth", I think the claim can be made that it isn't a direct source of growth, and certainly not in the way Beijing has always thought about growth, but it is consumption (foreign or domestic) that justifies business...
As for “Consumption is never a source of growth", I think the claim can be made that it isn't a direct source of growth, and certainly not in the way Beijing has always thought about growth, but it is consumption (foreign or domestic) that justifies business...
3/10
investment, even if one can pretend that more consumption isn't needed to justify property and infrastructure investment, and in China it is the latter two that is largely unproductive and causes the surge in debt.
investment, even if one can pretend that more consumption isn't needed to justify property and infrastructure investment, and in China it is the latter two that is largely unproductive and causes the surge in debt.
4/10
But the fact is that it has always been – and will continue to be – extremely difficult politically to engineer the income transfers that will allow China to become more consumption-driven, and so perhaps it is not a surprise that at least some policymakers would prefer...
But the fact is that it has always been – and will continue to be – extremely difficult politically to engineer the income transfers that will allow China to become more consumption-driven, and so perhaps it is not a surprise that at least some policymakers would prefer...
5/10
to argue in favor of maintaining the focus on high savings and investment. It is what worked for many years (and it still delivers wealth to the elite), although it was only going to work when China was severely under-invested for its level of social development.
to argue in favor of maintaining the focus on high savings and investment. It is what worked for many years (and it still delivers wealth to the elite), although it was only going to work when China was severely under-invested for its level of social development.
6/10
The problem is that this model is no longer sustainable once we reached the limits of the economy's ability to absorb additional investment productively, which we probably did 10-15 years ago. In that case a a high-savings, high-investment approach must...
The problem is that this model is no longer sustainable once we reached the limits of the economy's ability to absorb additional investment productively, which we probably did 10-15 years ago. In that case a a high-savings, high-investment approach must...
7/10
necessarily require either rapidly-rising trade surpluses or a rapidly-rising debt burden (or some combination of both). Once it can do neither, the economy inevitably rebalances anyway, but does so under conditions of much lower growth.
necessarily require either rapidly-rising trade surpluses or a rapidly-rising debt burden (or some combination of both). Once it can do neither, the economy inevitably rebalances anyway, but does so under conditions of much lower growth.
8/10
Japan for example was able to postpone rebalancing throughout the 1980s, but beginning in 1991-92, after growth had collapsed to well under 1%, driven by negative growth in investment, we finally started to see consumption rise from 52% of GDP to, I think, 58% by the end...
Japan for example was able to postpone rebalancing throughout the 1980s, but beginning in 1991-92, after growth had collapsed to well under 1%, driven by negative growth in investment, we finally started to see consumption rise from 52% of GDP to, I think, 58% by the end...
9/10
of the decade – still too low – and Japan spent much of the past two decades urgently trying, unsuccessfully, to raise consumption further. I suspect that this is what will happen in China. Because it is proving politically too difficult to rebalance demand, China might...
of the decade – still too low – and Japan spent much of the past two decades urgently trying, unsuccessfully, to raise consumption further. I suspect that this is what will happen in China. Because it is proving politically too difficult to rebalance demand, China might...
10/10
continue over-relying on investment (and the trade surplus) until it reaches debt capacity limits, after which GDP growth will drop sharply, driven by a much sharper drop in investment growth, in which case China will be forced to rebalance painfully the same way Japan did.
continue over-relying on investment (and the trade surplus) until it reaches debt capacity limits, after which GDP growth will drop sharply, driven by a much sharper drop in investment growth, in which case China will be forced to rebalance painfully the same way Japan did.
For example there are articles almost every day in People's Daily and Xinhua about what China is doing to boost consumption, although most of these are really about shifting consumption. At the end of this article, however, they do quote the chief...
en.people.cn/n3/2021/0513/c…
en.people.cn/n3/2021/0513/c…
...economist of a major Chinese credit rating agency as saying: "For the next step, China will need to increase people's spending power by boosting their incomes". Of course he means boosting income faster than GDP.
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