China's growth has been born out of market imbalances. So what does it mean for China to have a goal of balanced growth?
The issue of balanced growth in China is a very hot topic. It’s certainly one that the Chinese government is aware of. The centrepiece of the current 12th five year plan is to try and balance growth, by which the Chinese government and commentators mean that you would have personal household consumption making up a larger share of growth. Rather than at present where growth is largely driven by investment, and to the extent investment creates capacity in advance of demand, then that excess capacity needs to find its way into export markets and hence it’s contributing to global imbalances. So it’s not only good for China to rebalance it’s economy, it’s better for the global economy if China does so.
As I said, this is government policy. It can be done quite dramatically if China’s growth rate were to be reduced substantially and the share of consumption in GDP was allowed to rise and consumption would take a long time to offset a big fall in investment share. In my view the Chinese government won’t let that happen in that way. It won’t be a shock therapy. Policy settings will increasingly direct the economy towards an expansion of consumption as a share of GDP, but it is going to be a long process of transition.
Again, I don’t think there’s going to be any shock to the Australian economy from that. It’s simply politically too difficult for the Chinese government to try and rebalance the economy over night, even if it could. It will try and do this gradually and I think that come the next five year plan, in three years time, they will still be talking about rebalancing the economy and that will be an objective for the 13th five year plan as well.
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