1/7
In my latest piece for Carnegie, I model a rebalancing China and show what kind of consumption growth rates China would need to achieve GDP growth rates above 2-3%.
carnegieendowment.org via @CarnegieEndow
In my latest piece for Carnegie, I model a rebalancing China and show what kind of consumption growth rates China would need to achieve GDP growth rates above 2-3%.
carnegieendowment.org via @CarnegieEndow
2/7
For the past decade, recorded GDP growth rates in China exceeded the real underlying growth of the economy (what we used to call "high quality growth") mainly because of the rapid expansion of the "soft budget" part of the economy.
kornai-janos.hu
For the past decade, recorded GDP growth rates in China exceeded the real underlying growth of the economy (what we used to call "high quality growth") mainly because of the rapid expansion of the "soft budget" part of the economy.
kornai-janos.hu
3/7
This kind of growth can only be maintained by explosive growth in debt. Because of this "soft budget" growth, even after two decades of extremely high investment, China still has the highest investment share of GDP in history.
This kind of growth can only be maintained by explosive growth in debt. Because of this "soft budget" growth, even after two decades of extremely high investment, China still has the highest investment share of GDP in history.
4/7
Because China cannot maintain investment at 42-44% of GDP without a continued surge in debt, in this piece I model what it would take to bring investment down to 30% of GDP in ten years (which would still make it among the most investment-intensive economies in the world).
Because China cannot maintain investment at 42-44% of GDP without a continued surge in debt, in this piece I model what it would take to bring investment down to 30% of GDP in ten years (which would still make it among the most investment-intensive economies in the world).
5/7
Obviously the outcome depends primarily on the resulting growth rate of consumption (net exports are too small to make much of a difference), and I show different scenarios with different assumptions about consumption growth.
Obviously the outcome depends primarily on the resulting growth rate of consumption (net exports are too small to make much of a difference), and I show different scenarios with different assumptions about consumption growth.
6/7
Working out the simple arithmetic of rebalancing reinforces what many of us already knew: as Beijing tries to rein in the growth of debt, it can only maintain high growth rates through income transfers to households that sharply boost the growth rate of consumption.
Working out the simple arithmetic of rebalancing reinforces what many of us already knew: as Beijing tries to rein in the growth of debt, it can only maintain high growth rates through income transfers to households that sharply boost the growth rate of consumption.
7/7
My model assumes, unrealistically, that there are no adverse consequences or financial distress costs associated with its very high debt burden.
carnegieendowment.org
My model assumes, unrealistically, that there are no adverse consequences or financial distress costs associated with its very high debt burden.
carnegieendowment.org
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