Analysis: China upturn underscores need to rebalance economy

Comments (6)
WJL wrote:

You cannot rebalance the economy to domestic consumption if the people do not have adequate income. The initial phase always has to be capital investment to raise productivity and incomes.

The chinese government is well aware of the above facts. As per capita income is still low compared with other countries, the need for capital investment still remains. Retail sales have been growing steadily at about 15% over the last decade and consumption now contributes over 50% of the GDP. Imports have rocketed and benefited many trading partners.

It is a good example of how to manage an emerging nation economy. Well done!

Jan 20, 2013 8:05pm EST  --  Report as abuse
ncshu2 wrote:

The economic problems of China, particularly mentioned in the article to be rebalanced–investment and property, are deeply entrenched in the nation’s political system. Though Deng’s economic reforms has opened up China to the outside capitalist world for about 30 years, deep in the root, China is still a totalitarian country, where the government controls every fundamental of the society.

Pertaining to the seemingly forever overheating investment and property market is the direct executive control of the nation’s financial sector. Although the four national banks are listed in the security markets, strictly speaking they are not even near commercial banks yet, as the government does not only have a say where these so-called commercial banks invest but also decide the interest rates. One may argue in US the federal funds rate is targeted by FED, in China the deposit and lending rate are determined by its central bank–The People’s Bank of China, what’s the difference? The difference is huge! FED influences the interest rate by changing the money supply in the market, then let the market decide the rate. In China, the change of interest rates are declared by direct executive orders from its central bank. Thus commonly these interest rates are miles apart from those would-be rates decided by the market. To lower the cost of investment by the government and large or state-owned enterprises, the national deposit rate are deliberately set below the CPI most of the time. That’s understandable in a totalitarian political system where large or state-owned enterprises could always deny a proper share of the ordinary majority in deciding the national social economic policies. The deliberate low deposit interest rate set by the government impels many ordinary Chinese would rather put their money in other form of investment including the property market. That’s the demand side of the market. The low cost of investment resulted from the government policy have also helped the developers to finance their property projects.

One of the most conspicuous examples to illustrate the disastrous outcome of the complete governmental control of the country’s financial sector regarding to where the banks invest, is the high-speed railway project as a part of government stimulus plan to boost the economy after the world wide financial crisis in 2008. After many years of the project, it has not only constructed a system of quite vacant glistering high-speed trains most Chinese migrant works could not afford, but also amass an astronomical debt of 2.6 trillion yuan ($416 billion) for the Ministry of Railway alone. Also to the point, the minister of the Railway Ministry in charge of the project and his major subordinates have been arrested for the official corruption. Without the governmental control of the country’s financial sector, this kind of stimulus projects could not even be started at the first place due to the lack of means to finance. No commercial banks would support such grandiose project that the loan payback chance were so remote.

Without a deeper political reform, the chance to tackle these economic problems is quite slim.

Jan 21, 2013 5:29am EST  --  Report as abuse
joe10082 wrote:

China’s amazing economic growth over the course of the last decade has come at the expense of the health and happiness of a majority of the Chinese people. Underpaid; abused; and uncared for as they are. The Chinese leaders have knowingly taken this action thinking there would be no or little internal resistance to what they are doing. That was a major mistake on their part because the Chinese people number in the billions and hundreds of thousands will risk death itself rather than being brutally punished any longer by their uncivilized, self absorbed leadership.

Jan 21, 2013 7:43am EST  --  Report as abuse
jrj906202 wrote:

Why would China want it’s economy to become 75% dependent on consumer spending,like the U.S.Better that they continue making things and not be so dependent on consumer spending,like the declining U.S. and Europe.

Jan 21, 2013 11:43am EST  --  Report as abuse
jrj906202 wrote:

I think joe10082 has a point.The Chinese should demand a change,from authoritarian fascism to democratic fascism.They could elect someone like Obama,who would give them cradle to grave welfare.Why should the Chinese have to work for a living?Then they could join unions,kick back and vacation.Govt could just print whatever Yuan they need.If that doesn’t work,the workers could go back to starvation farming.

Jan 21, 2013 11:49am EST  --  Report as abuse
GDSAVTHQN wrote:

I’m waiting for the day that one of their China forcasts actually materializes. Hasn’t happened in this decade.
Mostly just a slap together of misused indicators to promote a non-existant reality. I always wonder what’s the motovation behind these doomsayers. Not original thinking, but still good for a laugh after all these years. Great stuff.

Jan 21, 2013 11:54am EST  --  Report as abuse
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