(MENAFN- Asia Times) “But your picture on my wall, it reminds me that it's not so bad. It's not so bad.”
Yves V & Ilkay Secan
The jury is in on what ails China's economy. It was only a matter of time. And the obvious solution – we are told – will be politically treacherous. The verdict is unanimous. China's investment and export-led model has finally run its course.
Not only that but the model had been taken to such extremes that the rebalancing must be brutal. Proof is everywhere. The property sector is on its knees. Infrastructure debt has paralyzed local governments. Exports have peaked and are declining.
If only China could stop squeezing its long-suffering households, consumption could become an engine of if not growth then at least stability. But that would require empowering households.
And we all know inefficient SOEs and venal local governments will fight tooth and nail against the interest of households whose consumption was a paltry 38% of GDP in 2021. While profligate Americans consuming 68% of GDP may not be a proper comparison, frugal Japanese and Korean households consumed 54% and 48% of GDP, respectively, substantially more than their put upon Chinese neighbors.
Given the immense size of China's economy, its imbalances have global implications, they say. Analysts have recently pointed out that while China's economy is 18% of global GDP, it accounts for only 13% global consumption and a massive 32% of global investment. Through trade and capital flows, China is surely offshoring its extreme domestic imbalances to the world.
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