Opinion | Relax, China’s economy is not headed for a crisis
- While it would help if Chinese households saved less and spent more, the economy is probably in a much better position than the pessimists claim
Economists have lately been sounding the alarm that China’s economic development is teetering on the edge of a crisis. The problem, they argue, is that China’s growth is driven by extremely high levels of capital investment, and that private consumption is being suppressed. Is a crisis really looming?
It is true that China’s growth pattern could, for decades, be characterised as investment-driven. Like most East Asian economies, China supported development by leveraging its high savings rate to maintain very high investment, and policymakers often used infrastructure spending as a countercyclical policy instrument.
In 2009, for example, China’s government introduced a 4 trillion yuan stimulus plan to offset the adverse effects of the 2008 global economic crisis. By the end of that year, China’s rate of investment growth had surged to 30.1 per cent, with total investment reaching 45 per cent of gross domestic product.
But China withdrew fiscal stimulus in 2011 to contain a swelling real-estate bubble and mitigate the threat of inflation. Investment growth has fallen steadily ever since, amounting to just 3 per cent last year, and has been largely outpaced by GDP growth since 2017.
To be sure, China’s final consumption expenditure is much lower than that of the United States – 56 per cent of GDP, compared to 81.5 per cent of GDP, in 2019. But the structure of consumption is very different: services constitute less than 50 per cent of final consumption in China, compared to two-thirds in the US.
