There are two ways to raise the consumption share in Chinese GDP. One is to lower the savings rate out of household disposable income. The other is to raise the share of households in national income. Stephen's preference seems to be the former. But I don't think it is plausible that the household savings rate will fall enough for consumption to grow substantially faster than national income over the long term. So, the distribution of income must also be addressed. That is an inescapable policy issue for China if it wants a significantly higher share of consumption in national income. I look forward the Stephen's discussion of these policy issues.
Martin, thank you for raising a very important point on the means of Chinese consumer-led rebalancing. My short answer is it’s not either or — drawing down personal saving or boosting the household sector’s income share — but most likely a combination of both. Without a more secure safety net, increasing the household sector’s income share could well go for naught —by boosting precautionary saving further. I agree that this is a very important policy issue for China and will attempt to quantify my thoughts on this point in subsequent posts.
I agree that it’s both. My point is that it’s definitely going to have to include some sort of redistribution of income or consumption. The Chinese authorities are astoundingly resistant to that idea.
There are two ways to raise the consumption share in Chinese GDP. One is to lower the savings rate out of household disposable income. The other is to raise the share of households in national income. Stephen's preference seems to be the former. But I don't think it is plausible that the household savings rate will fall enough for consumption to grow substantially faster than national income over the long term. So, the distribution of income must also be addressed. That is an inescapable policy issue for China if it wants a significantly higher share of consumption in national income. I look forward the Stephen's discussion of these policy issues.
Martin, thank you for raising a very important point on the means of Chinese consumer-led rebalancing. My short answer is it’s not either or — drawing down personal saving or boosting the household sector’s income share — but most likely a combination of both. Without a more secure safety net, increasing the household sector’s income share could well go for naught —by boosting precautionary saving further. I agree that this is a very important policy issue for China and will attempt to quantify my thoughts on this point in subsequent posts.
I agree that it’s both. My point is that it’s definitely going to have to include some sort of redistribution of income or consumption. The Chinese authorities are astoundingly resistant to that idea.