1/9
Zichen, I think Beijing may indeed believe that it is taking seriously the determination to expand domestic consumption, but I have a problem with how they propose to do it.
Zichen, I think Beijing may indeed believe that it is taking seriously the determination to expand domestic consumption, but I have a problem with how they propose to do it.
2/9
As you point out, they want to ensure "that our implementation of the strategy to expand domestic demand is integrated with our efforts to deepen supply-side structural reform."
As you point out, they want to ensure "that our implementation of the strategy to expand domestic demand is integrated with our efforts to deepen supply-side structural reform."
3/9
That sounds good in an abstract way, and it seems like something no one could oppose, but I nonetheless find it contradictory. "Structural supply-side reform" has always meant in practice directing additional resources towards subsidizing the supply side.
That sounds good in an abstract way, and it seems like something no one could oppose, but I nonetheless find it contradictory. "Structural supply-side reform" has always meant in practice directing additional resources towards subsidizing the supply side.
4/9
They do this not just directly, but also indirectly, by spending on logistics and transportation infrastructure.
But there's a cost to these subsidies, and so far they've been assigned to households, largely in the form of suppressed wages and financial repression.
They do this not just directly, but also indirectly, by spending on logistics and transportation infrastructure.
But there's a cost to these subsidies, and so far they've been assigned to households, largely in the form of suppressed wages and financial repression.
5/9
The problem is that expanding domestic demand by boosting the consumptions share also requires the allocation of additional resources, but this time directed toward households.
The problem is that expanding domestic demand by boosting the consumptions share also requires the allocation of additional resources, but this time directed toward households.
6/9
Even if we set aside the problem that households are effectively subsidizing "structural supply-side reform", at the very least emphasizing both supply-side reform and the expansion of consumption leaves open the question of where the resources to do both are to come from.
Even if we set aside the problem that households are effectively subsidizing "structural supply-side reform", at the very least emphasizing both supply-side reform and the expansion of consumption leaves open the question of where the resources to do both are to come from.
7/9
In principle, as I have long argued, these can be funded through the liquidation of local-government assets, but the point I would make is that proposing to strengthen both investment and consumption is always the easy part.
In principle, as I have long argued, these can be funded through the liquidation of local-government assets, but the point I would make is that proposing to strengthen both investment and consumption is always the easy part.
8/9
Allocating the cost of doing so, especially for the latter, has always been the hard part, and while Beijing is happy to do the former, they still haven't figured out (it seems to me) how to do the latter.
Allocating the cost of doing so, especially for the latter, has always been the hard part, and while Beijing is happy to do the former, they still haven't figured out (it seems to me) how to do the latter.
9/9
It is certainly an improvement that they are now stressing consumption on a par with production, but without specifying how both are to be funded, it seems very likely to me that the latter will continue to crowd out the former.
It is certainly an improvement that they are now stressing consumption on a par with production, but without specifying how both are to be funded, it seems very likely to me that the latter will continue to crowd out the former.
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