Wednesday 15 August 2012

CHINA: INVESTMENT AND CONSUMPTION

China Daily 3

IS INVESTMENT-BASED STIMULUS NEEDED?

Lee Il Houng

China Daily, August 15, 2012

The Chinese government took its foot off the brake earlier in the year in response to the deteriorating external environment facing the nation's economy. It front loaded its fiscal spending, eased access to credit, and accelerated investment approvals. Local governments started announcing stimulus packages and relaxed some property measures. Against these developments, the debate continues whether China should again ratchet up investment.

The government, on the other hand, has been relatively firm in its resolve to moderate investment growth and promote consumption, keep property market measures in place, and address income inequality. Can such a position be justified in the face of the current uncertain global environment? Yes.

Let us look at China's consumption, which is at the center of the government's rebalancing efforts and often accused of being too low. At about 47 percent of GDP, consumption in China is indeed low compared with 63-68 percent in Japan and South Korea when their respective per capita GDP was around the same level as China in 2011.

However, a different comparison, taking into account each country's 20-year peak growth period, tells a different story. China's consumption spending from 1991 to 2011 rose 9.0 percent a year in real terms, well surpassing the 6.3 percent in South Korea (1966-86) and 6.9 percent in Japan (1956-76). This, by any measure, is a very impressive achievement.

The reason for the low share of consumption to GDP is because of China's own success. Led by investment, China's GDP growth during its peak growth period averaged 10.4 percent, well exceeding the 8.2 percent in Japan and 9.5 percent in South Korea. This is even more remarkable when one considers that China was able to lift its economy at this speed with a population that is 35 times larger than that of South Korea and 13 times larger than that of Japan.

(...) [artículo aquí]

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