1/11
Good article by @KeithBradsher: " The Chinese government and the Communist Party jointly issued a lengthy list of planned initiatives on Sunday to get people to spend more, including larger pensions, better medical benefits and higher wages."
nytimes.com/2025/03/16/bus…
Good article by @KeithBradsher: " The Chinese government and the Communist Party jointly issued a lengthy list of planned initiatives on Sunday to get people to spend more, including larger pensions, better medical benefits and higher wages."
nytimes.com/2025/03/16/bus…
2/11
"But," he continues, "it assigned many of these tasks to the country’s local governments, many of which are struggling under enormous debts and plummeting revenues from the sale of state land."
This is the problem with every attempt to boost the consumption share of GDP.
"But," he continues, "it assigned many of these tasks to the country’s local governments, many of which are struggling under enormous debts and plummeting revenues from the sale of state land."
This is the problem with every attempt to boost the consumption share of GDP.
3/11
The sustainable way to do it is to increase the share of GDP retained by households. But increasing their share requires explicit or implicit transfers from either businesses or government. If the household share rises, after all, someone else's share must decline.
The sustainable way to do it is to increase the share of GDP retained by households. But increasing their share requires explicit or implicit transfers from either businesses or government. If the household share rises, after all, someone else's share must decline.
4/11
Beijing clearly wants local governments to absorb the transfers, but given their precarious cashflow positions, for now they can do so mainly by placing new burdens on households or businesses, e.g. through taxes, layoffs, fees, or cutbacks on existing services.
Beijing clearly wants local governments to absorb the transfers, but given their precarious cashflow positions, for now they can do so mainly by placing new burdens on households or businesses, e.g. through taxes, layoffs, fees, or cutbacks on existing services.
5/11
In that case, the net impact on households is reduced, and the remaining costs absorbed by businesses. The former doesn't help boost consumption, and the latter, by indirectly forcing businesses to absorb the costs, is bad for the economy.
In that case, the net impact on households is reduced, and the remaining costs absorbed by businesses. The former doesn't help boost consumption, and the latter, by indirectly forcing businesses to absorb the costs, is bad for the economy.
6/11
The only other way to do so involves forcing local governments either to transfer to households a large part of the substantial assets they control, or to liquidate those assets in order directly or indirectly pay for higher household income.
The only other way to do so involves forcing local governments either to transfer to households a large part of the substantial assets they control, or to liquidate those assets in order directly or indirectly pay for higher household income.
7/11
This of course implies a radical transformation of the relationship between Beijing and local governments and between local governments and the households and businesses in their jurisdiction, and given the sheer extent of the needed transfers, it will be very difficult.
This of course implies a radical transformation of the relationship between Beijing and local governments and between local governments and the households and businesses in their jurisdiction, and given the sheer extent of the needed transfers, it will be very difficult.
8/11
This is why, for all years of promising to boost consumption, it has been so hard for China to make much progress. It has to raise the household share of GDP by ten percentage points at the very least, which of course means an equivalent reduction of someone else's share.
This is why, for all years of promising to boost consumption, it has been so hard for China to make much progress. It has to raise the household share of GDP by ten percentage points at the very least, which of course means an equivalent reduction of someone else's share.
9/11
Many analysts insist that China will choose to avoid rebalancing altogether, but they miss the point. These levels of imbalance simply cannot be sustained if neither China nor the rest of the world can absorb the growing gap between consumption and production.
Many analysts insist that China will choose to avoid rebalancing altogether, but they miss the point. These levels of imbalance simply cannot be sustained if neither China nor the rest of the world can absorb the growing gap between consumption and production.
10/11
China will rebalance one way or another. The important question is how it rebalances: whether an increase in the household share of GDP will occur in the form of a debt crisis and a sharp contraction in GDP, as occurred in the US in the early 1930s, or of many years of...
China will rebalance one way or another. The important question is how it rebalances: whether an increase in the household share of GDP will occur in the form of a debt crisis and a sharp contraction in GDP, as occurred in the US in the early 1930s, or of many years of...
11/11
stable consumption growth and much lower GDP growth, as occurred in Japan after 1990, or of a surge in consumption that keeps GDP growth stable (which would be historically unprecedented). These are arithmetically the only three ways to rebalance.
stable consumption growth and much lower GDP growth, as occurred in Japan after 1990, or of a surge in consumption that keeps GDP growth stable (which would be historically unprecedented). These are arithmetically the only three ways to rebalance.
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