International Relations
Economics
China
Government Policies
Economic Growth
Public Policy
Consumer Empowerment
Growth Model
1/9
"If China is to put growth onto a more sustainable footing, it needs to empower its consumers. In particular, Beijing should allocate hefty fiscal transfers into state pension funds for both city and rural dwellers. This will cost a great deal."
ft.com
"If China is to put growth onto a more sustainable footing, it needs to empower its consumers. In particular, Beijing should allocate hefty fiscal transfers into state pension funds for both city and rural dwellers. This will cost a great deal."
ft.com
2/9
This FT editorial is right, of course, but it doesn't go far enough. To rebalance the Chinese economy requires not just an increase in transfers to households but, more importantly, a fairly substantial transformation of the country's economic growth model.
This FT editorial is right, of course, but it doesn't go far enough. To rebalance the Chinese economy requires not just an increase in transfers to households but, more importantly, a fairly substantial transformation of the country's economic growth model.
3/9
Specifically, it requires that China shift from a growth model in which households are structurally locked into transfers that subsidize government and businesses to one in which government and businesses are structurally locked into transfers that subsidize households.
Specifically, it requires that China shift from a growth model in which households are structurally locked into transfers that subsidize government and businesses to one in which government and businesses are structurally locked into transfers that subsidize households.
4/9
China doesn't need, in other words, incremental increase in transfers to households, but rather a growth model that will, among other things, reduce the international competitiveness of manufacturers and undermine the sustainability of infrastructure and property investment.
China doesn't need, in other words, incremental increase in transfers to households, but rather a growth model that will, among other things, reduce the international competitiveness of manufacturers and undermine the sustainability of infrastructure and property investment.
5/9
Consider Japan's experience. For thirty years, with its much less unbalanced economy, Japan has been struggling to increase the role of domestic consumption, but except for a brief improvement in the first few years, it hasn't been very successful.
Consider Japan's experience. For thirty years, with its much less unbalanced economy, Japan has been struggling to increase the role of domestic consumption, but except for a brief improvement in the first few years, it hasn't been very successful.
6/9
If it were just a matter of increasing transfers to households, surely Japan could have pulled this off decades ago. They could have increased pensions, reduced fees and municipal expenses, raised wages relative to productivity, and so on.
If it were just a matter of increasing transfers to households, surely Japan could have pulled this off decades ago. They could have increased pensions, reduced fees and municipal expenses, raised wages relative to productivity, and so on.
7/9
The problem, however, was that reversing the direction of transfers couldn't help but reverse the international competitiveness of its all-important export sector and undermine the ways in which local governments managed their affairs.
The problem, however, was that reversing the direction of transfers couldn't help but reverse the international competitiveness of its all-important export sector and undermine the ways in which local governments managed their affairs.
8/9
These sectors were structured around large implicit subsidies. Eliminating and reversing these subsidies meant restructuring the economy in ways that would have involved more pain at first for the export sector and local government operations than Tokyo was willing to allow.
These sectors were structured around large implicit subsidies. Eliminating and reversing these subsidies meant restructuring the economy in ways that would have involved more pain at first for the export sector and local government operations than Tokyo was willing to allow.
9/9
It is a good thing that the world finally recognizes how important it is to reverse China's demand imbalances, but if Beijing is going to pull it off, it will also have to recognize the nature of the structural changes and how costly at first these changes will be to growth.
It is a good thing that the world finally recognizes how important it is to reverse China's demand imbalances, but if Beijing is going to pull it off, it will also have to recognize the nature of the structural changes and how costly at first these changes will be to growth.
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