1/11
"China should shift the focus of its stimulus from investment to consumption and further loosen urban residency curbs to boost migrant workers' spending power, Cai Fang, an adviser to the People's Bank of China, said at a business forum."
reuters.com
"China should shift the focus of its stimulus from investment to consumption and further loosen urban residency curbs to boost migrant workers' spending power, Cai Fang, an adviser to the People's Bank of China, said at a business forum."
reuters.com
2/11
He's right of course that China should shift stimulus spending from investment to consumption, and it shows just how widespread this thinking has become in recent years, but focusing on loosening hukou requirements also shows just how difficult this process can be.
He's right of course that China should shift stimulus spending from investment to consumption, and it shows just how widespread this thinking has become in recent years, but focusing on loosening hukou requirements also shows just how difficult this process can be.
3/11
China has taken some steps in loosening hukou restrictions, but they are either very limited (e.g. restricted to highly desirable graduates) or pretty useless: as my friends say, you are now free to live in any city that no one wants to live in.
China has taken some steps in loosening hukou restrictions, but they are either very limited (e.g. restricted to highly desirable graduates) or pretty useless: as my friends say, you are now free to live in any city that no one wants to live in.
4/11
If Beijing were to eliminate hukou restrictions in a truly meaningful way, the result would likely be a massive transfer of population to the 15-20 most attractive cities that would overwhelm both the places from which workers left and the places to which they went.
If Beijing were to eliminate hukou restrictions in a truly meaningful way, the result would likely be a massive transfer of population to the 15-20 most attractive cities that would overwhelm both the places from which workers left and the places to which they went.
5/11
This would put enormous budgetary pressures on popular cities like Beijing and Shanghai, for example, who would either have to raise taxes significantly or cut back on services.
This would put enormous budgetary pressures on popular cities like Beijing and Shanghai, for example, who would either have to raise taxes significantly or cut back on services.
6/11
While China would definitely benefit economically in the long term from lower frictional costs associated with labor mobility and a more efficient reordering of the working population, the short term costs would be substantial and highly disruptive.
While China would definitely benefit economically in the long term from lower frictional costs associated with labor mobility and a more efficient reordering of the working population, the short term costs would be substantial and highly disruptive.
7/11
This is the problem with all efforts to rebalance income. They are necessary in the long term, but because they are also very painful in the short term, they have been postponed year after year until they can no longer be easily postponed.
This is the problem with all efforts to rebalance income. They are necessary in the long term, but because they are also very painful in the short term, they have been postponed year after year until they can no longer be easily postponed.
8/11
China should certainly "shift the focus of its stimulus from investment to consumption," and some of us have been arguing this for over a decade, but its important to understand that this doesn't mean just shifting the direction of subsidies from one sector to another.
China should certainly "shift the focus of its stimulus from investment to consumption," and some of us have been arguing this for over a decade, but its important to understand that this doesn't mean just shifting the direction of subsidies from one sector to another.
9/11
It means completely reversing the direction of subsidies. For 2-3 decades implicit and explicit transfers from households allowed Beijing to direct subsidies in greater or lesser amounts to a whole series of manufacturing and investment sectors.
It means completely reversing the direction of subsidies. For 2-3 decades implicit and explicit transfers from households allowed Beijing to direct subsidies in greater or lesser amounts to a whole series of manufacturing and investment sectors.
10/11
Shifting the focus of stimulus to consumption means reversing the transfers that once subsidized the manufacturing and investment sectors and that made Chinese manufacturing so internationally competitive. This would greatly undermine China's manufacturing competitiveness.
Shifting the focus of stimulus to consumption means reversing the transfers that once subsidized the manufacturing and investment sectors and that made Chinese manufacturing so internationally competitive. This would greatly undermine China's manufacturing competitiveness.
11/11
This "shift", in other words, doesn't mean strengthening consumption and leaving everything else the same. It means strengthening consumption while sharply undermining Chinese manufacturing competitiveness.
This "shift", in other words, doesn't mean strengthening consumption and leaving everything else the same. It means strengthening consumption while sharply undermining Chinese manufacturing competitiveness.
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