1/7
This Yicai article discusses a very interesting statement by prominent economist Teng Tai. Like a rising number of Chinese economists, Teng calls for transferring resources out of investment and into household income.
yicaiglobal.com/news/china-sho…
This Yicai article discusses a very interesting statement by prominent economist Teng Tai. Like a rising number of Chinese economists, Teng calls for transferring resources out of investment and into household income.
yicaiglobal.com/news/china-sho…
2/7
But he proposes it at a higher scale than others. The key, he says, "is to save around CNY20 trillion to CNY30 trillion of inefficient, ineffective, and excess investment each year, and convert it into disposable incomes and subsequently into consumption."
But he proposes it at a higher scale than others. The key, he says, "is to save around CNY20 trillion to CNY30 trillion of inefficient, ineffective, and excess investment each year, and convert it into disposable incomes and subsequently into consumption."
3/7
China currently invests around RMB 50-55 trillion every year. Teng seems to be suggesting that well over a third of this is "inefficient, ineffective, and excess investment", or substantially more than half of the aggregate investment in property and infrastructure.
China currently invests around RMB 50-55 trillion every year. Teng seems to be suggesting that well over a third of this is "inefficient, ineffective, and excess investment", or substantially more than half of the aggregate investment in property and infrastructure.
4/7
He may be right. China's very weak domestic demand and its soaring debt are the consequences of years of implicit and explicit transfers from households to subsidize investment that in the part 10-15 years has grown increasingly "inefficient, ineffective, and excessive".
He may be right. China's very weak domestic demand and its soaring debt are the consequences of years of implicit and explicit transfers from households to subsidize investment that in the part 10-15 years has grown increasingly "inefficient, ineffective, and excessive".
5/7
By now, like Teng, most Chinese economists recognize that shifting to a sustainable growth model requires a reversal of those transfers. This is the only way to increase the consumption share of GDP sustainably which, in turn, will increase productive private investment.
By now, like Teng, most Chinese economists recognize that shifting to a sustainable growth model requires a reversal of those transfers. This is the only way to increase the consumption share of GDP sustainably which, in turn, will increase productive private investment.
6/7
But no one seems to be discussing why this will be so difficult. Such a massive shift of economic activity from local governments and SOEs to households requires deep and painful institutional changes, and while this may be happening, it is happening at a glacial pace.
But no one seems to be discussing why this will be so difficult. Such a massive shift of economic activity from local governments and SOEs to households requires deep and painful institutional changes, and while this may be happening, it is happening at a glacial pace.
7/7
Perhaps the discussion will progress. I don't know how much influence Teng has on policymaking, but what is interesting to me is that we are seeing almost on a daily basis articles in the official press calling for a shift from excess investment to consumption.
Perhaps the discussion will progress. I don't know how much influence Teng has on policymaking, but what is interesting to me is that we are seeing almost on a daily basis articles in the official press calling for a shift from excess investment to consumption.
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