1/11
SCMP: "Beijing is doubling down on efforts to create a stronger domestic market, as it focuses on reducing China’s vulnerability to external tariff shocks. Premier Li Qiang said on Thursday that...
scmp.com/economy?module…
SCMP: "Beijing is doubling down on efforts to create a stronger domestic market, as it focuses on reducing China’s vulnerability to external tariff shocks. Premier Li Qiang said on Thursday that...
scmp.com/economy?module…
2/11
China would continue to anchor its development strategy in bolstering “domestic circulation” – a concept that refers to strengthening the country’s economic self-reliance by creating a robust, unified domestic market"
China would continue to anchor its development strategy in bolstering “domestic circulation” – a concept that refers to strengthening the country’s economic self-reliance by creating a robust, unified domestic market"
3/11
That may sound plausible on the surface, but there is a contradiction between strengthening "domestic circulation" while maintaining "external circulation".
ft.com/content/a9572b…
That may sound plausible on the surface, but there is a contradiction between strengthening "domestic circulation" while maintaining "external circulation".
ft.com/content/a9572b…
4/11
That's because the former requires that wages rise relative to productivity, while the success of the latter is based on low wages relative to productivity. China's export competitiveness is structurally the flip side of its weak domestic demand.
carnegieendowment.org/china-financia…
That's because the former requires that wages rise relative to productivity, while the success of the latter is based on low wages relative to productivity. China's export competitiveness is structurally the flip side of its weak domestic demand.
carnegieendowment.org/china-financia…
5/11
If China is indeed successful in raising domestic demand, this will come at the cost of its manufacturing sector, which accounts for a very high 27% of the country's GDP. This cannot happen quickly without forcing a disruptive adjustment.
If China is indeed successful in raising domestic demand, this will come at the cost of its manufacturing sector, which accounts for a very high 27% of the country's GDP. This cannot happen quickly without forcing a disruptive adjustment.
6/11
Japan's experience is instructive. In the 2-3 decades it took the country to raise domestic consumption share by 10 percentage points, the manufacturing share of Japan's economy declined from 27% to a more "normal" 19%.
Japan's experience is instructive. In the 2-3 decades it took the country to raise domestic consumption share by 10 percentage points, the manufacturing share of Japan's economy declined from 27% to a more "normal" 19%.
7/11
This suggests it will be difficult for China to raise the domestic consumption share quickly enough to matter without risking a rise in unemployment as already-struggling manufacturers see a surge in labor costs.
This suggests it will be difficult for China to raise the domestic consumption share quickly enough to matter without risking a rise in unemployment as already-struggling manufacturers see a surge in labor costs.
8/11
Germany faces this problem too, but unlike Japan in the 1990s and China today, Germany has a way out. Japan's and China's massive overinvestment in infrastructure left them no room to...
Germany faces this problem too, but unlike Japan in the 1990s and China today, Germany has a way out. Japan's and China's massive overinvestment in infrastructure left them no room to...
9/11
shift employment out of manufacturing and into infrastructure investment, Germany has a lot of room to improve its infrastructure, so it can manage the transition with less disruption to employment and growth.
shift employment out of manufacturing and into infrastructure investment, Germany has a lot of room to improve its infrastructure, so it can manage the transition with less disruption to employment and growth.
10/11
The point is that China's low consumption share of GDP is not an oversight or a mistake that can easily be resolved. It is a structural consequence of a deeply-embedded growth strategy.
The point is that China's low consumption share of GDP is not an oversight or a mistake that can easily be resolved. It is a structural consequence of a deeply-embedded growth strategy.
11/11
The good news is that despite the nonsense in the media, Beijing is very aware of just how vulnerable it is as a trade-surplus economy to trade conflict. The bad news is that this vulnerability is hard to change quickly.
The good news is that despite the nonsense in the media, Beijing is very aware of just how vulnerable it is as a trade-surplus economy to trade conflict. The bad news is that this vulnerability is hard to change quickly.
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