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The author is the president of Rockfeller International. His latest book is ‘Capitalism with What Watt wrong’
The great truth about China is that its economy consumes very little and invests a lot. Over-investment is a real problem, but not underconsence. Therefore, increasing calls are misled to “imbalance” to the country by encouraging more consumer expenses. In showing the standard, China designed to become a manufacturing power in the 1980s and has since suppressed the expenditure by consumers, so it can put their savings in ports and factories. But the suppressed consumer is a myth.
So far this century, in real terms, private consumer expenses in China have exceeded 8 percent in a year, faster than any other economy – so far. Over the years, consumer spending has increased in most countries, due to aging population and decline in real income, and it has fallen by 5 percent in China in a year. But this is still higher than any other major economy except Turkey, where consumption was promoted by credit boom and refugee flow.
Myth rests in a good share on the consumption parts of China’s GDP, which is just 40 percent under the global criteria. But the reason for this discrepancy is not that consumption has increased gradually, it is that other large components of GDP, investment – in infrastructure, real estate, export industry – 10 percent average per year in this century, has increased rapidly.
This speed is also the fastest by a significant difference for any major economy. Right to this long-term pattern of excessive investment, China’s GDP consumption will be about 55 percent, which is close to normal.
Consumer expenses in China have also increased much faster than Japan and South Korea to Indonesia and Malaysia, established and compared to new Asian manufacturing powers. And when the original miracle economies were reaching the level of development in China today, they also saw a sharp recession in the increase in consumer spending.
Nevertheless, somehow, the call to free the Chinese consumer persists with the increasing evidence of stable increase in its expenses. It is difficult to see symptoms of suppression among Chinese shopkeepers in luxury shops from Shanghai to Paris. Drill consumer expenses, and development is mainly weakening for services, not goods. But this is also, partly confusion. If not very low or any fee is not paid by the Chinese government including healthcare and education, then consumption as part of GDP increases significantly.
On the other hand, investment, 40 percent of GDP is clearly excessive and is almost equal to consumption. In a specific economy, investment is less than consumption as part of GDP but is more important for the economic cycle. Consumers cannot stop spending on requirements in recession, but businesses can stop investing, at least for some time.
This biping has been extreme. Only 10 countries have ever seen an investment summit above 40 percent of GDP, in short. At that level, so much capital flows into unnecessary projects that bipool is rapidly upside down to grow rapidly. China, uniquely, has been managed by debt engineering to keep investing on it for two decades.
The tireless over-investment is promoting stress with business partners, as China exports a lot of its additional production, and home reproductive dysfunction. Over time, such binges turn capital into low-producing goals such as real estate-which today helps to convince China’s debt-soaked property market.
Outsiders urged China to focus on the consumer, which could cite real “structural” obstacles for their expenses. Internal migration control prevents many rural sugar from entering high -paid urban jobs. Low pension forces many workers to save for retirement rather than spending. Weak real estate markets and other negative “wealth effects” discourage more expenses.
Chinese leaders are paying attention to some of this advice. A “Action Plan” announced in March promised “strict consumption”, but the action has so far highlighted structural reforms and is heavy on subsidy for the purchase of goods such as home appliances – which has only one passing effect. Consumers who run to buy rice cooker will no longer buy them in the coming years.
China’s consumer expenses are growing at a world-setting pace and do not have much space to accelerate it, especially not when many houses are deep in debt. This loan has exceeded 60 percent of GDP in the last 15 years, the highest among the emerging markets and is close to the heavy consumer-powered American economy.
The country cannot solve the real problems caused by extreme investment-from the plenary-political stress to the dysfunction at home-by attacking the phantom problem of underconsuration. The cruelty to imbalance is that the state has been extending a lot of investment for a long time in the name of killing its bloated development target, which is now set to 5 percent.
The answer is not to move the state’s attention to increase consumption. It is to accept that China is weighed with a shrinking population, a decline in productivity and a huge debt load. Its actual possible growth rate is close to 5 percent to 2.5 percent. And as -such as growth slows down at a more realistic motion, consumption will naturally expand as part of the economy.
