China economic rebalancing will take at least 10 years

Economic growth

SHARE THIS STORY

Wang XiaoluWe must all hope that new economic policies now being implemented in China are successful.  The alternative, of a debt implosion, is too awful to contemplate.  But as China’s state-owned media continually remind us, the transition is likely to prove extremely difficult.

An important interview with the deputy head of the National Economic Research Institute, Wang Xiaolu  (pictured above), highlights the enormous challenges ahead:

I think you can see some initial rebalancing of the economy over the past couple of years. No one quarter would define rebalancing since it is very much a long-term, rather than short-term process”.

Wang argues consumption will have rise to around 60% of GDP (versus today’s level of below 50%), before significant rebalancing will have occurred.  He says this will take at least 10 years, and probably longer.

I expect it will gradually happen over the next 10 years but it will depend on the success of institutional reforms as to how the patterns of income distribution will be readjusted“.

At the same time, he believes there are huge risks if China’s economic rebalancing fails to occur.

The continuation of the current situation would result in a very bad situation for China because current levels of economic growth would not be sustained. It would lead to many problems such as a lack of funding for public services, debt issues and also higher levels of unemployment.”

What we need for rebalancing is a lower savings rate and lower investment rate, and higher household consumption and these need to be permanent features.”

Wang also points out that the previous government’s Rmb 4tn ($660 billion) stimulus was one of the largest in history, and worsened the existing imbalances:

Many government investment programs resulted in bubbles and debt problems. We need to learn lessons from the financial crisis because there was certainly over-investment in the economy.”

Wang also argues that the stimulus, and the $10tn lending programme, has “exposed a local government funding problem (many cities and towns in China remain seriously in debt), which needs to be resolved as part of the rebalancing process”.

Local governments rely too much on land sales for funding. It is not sustainable because land is limited and you cannot sell it forever. Land sales are not well monitored or transparent. Local governments need to be able to raise money in local taxes and be less reliant on central government”.

This important interview confirms that the new leadership realises there is no alternative to the 10-year plan that it unveiled at the Third Plenum last year.

As we will discuss in 9 September’s free webinar, we cannot know if they will be successful.  But at least they have recognised the risks of continuing with the previous stimulus policies.  This is something that has yet to dawn on policymakers in the West and Japan.

 

PREVIOUS POST

2 dates for the diary

21/08/2014

Last May’s China Transformation webinar with John Richardson attracted g...

Learn more
NEXT POST

US retail sales hit by declines in income and household wealth

25/08/2014

US retail sales tell a sorry story about the state of underlying demand.  US sa...

Learn more
More posts
Smallpox was the first vaccination to change the world – now we have a new opportunity to improve our lives
03/04/2021

Chart 1: Increased life expectancy led to a dramatic increase in GDP/capita The pandemic has reminde...

Read
COP 26 set to accelerate development of the 15-minute city
28/03/2021

One of the good things to happen in the pandemic over the past year is that ‘cooking has becom...

Read
China’s dual circulation policy aims to reduce debt reliance
14/03/2021

Every now and then, people wake up to the fact that debt is only good news when it adds to growth. O...

Read
UK set to take hard line on EU trade under David Frost
21/02/2021

The Brexit debate has always been about politics, not economics.  So it was no surprise that Decemb...

Read
EU focuses on a sustainable and circular plastics system
31/01/2021

“The challenges posed by plastics are to a large extent due to the fact that our production and co...

Read
Businesses face “biggest imposition of red tape in 50 years” as Brexit begins
03/01/2021

Most companies had closed when the new EU-UK Trade and Cooperation Agreement (TCA) was finally annou...

Read
Your A to Z Guide to the reality of Brexit after 31 December
29/11/2020

(Picture credit Shutterstock) A.  Article 50 of the Lisbon Treaty set out the rules for leaving ...

Read
Chemistry & the Economy webinar on Thursday
10/11/2020

Please join me for the next ACS Chemicals & Economy webinar on Thursday, at 2pm Eastern Standard...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more