NEW YORK: The great half-truth about China is that its economy consumes too little and invests too much. Over-investment is a real problem, but underconsumption is not. So the mounting calls on the country to “rebalance” by encouraging more consumer spending are misguided.
In the standard telling, China set out to become a manufacturing power in the 1980s and has since suppressed spending by consumers, so it could pour their savings into building ports and factories. But the suppressed consumer is a myth.
So far this century, in real terms, private consumer spending in China has grown more than 8 per cent a year, faster than in any other economy – by far. Over the past few years, consumer spending growth has slowed in most countries, due to ageing populations and falling real incomes, and it has fallen in China as well to 5 per cent a year. But that is still higher than in any other major economy except Turkey, where consumption was boosted by a credit boom and refugee inflows.
The myth rests in good part on the consumption share of China’s gross domestic product, which is just 40 per cent – well below the global norm.
But the reason for this anomaly is not that consumption has grown slowly, it is that the other big component of GDP, investment – in infrastructure, real estate, export industries – has grown even faster, averaging 10 per cent a year in this century.
Source: CNA
