TAGGED UNDER: Economy & Finance

Keyu Jin discusses economic “rebalancing” in China

Mackenzie Coke
editor at Chartwell Speakers

Writing in Project Syndicate, Keyu Jin, discusses the economic “rebalancing” Chinese leaders have been pursuing for several years. The country’s current growth model is to be replaced by one based on services and domestic consumption, which she believes is a distant prospect.

One reason Chinese households are unlikely to increase their spending is the imperative faced by China’s older workers to save for retirement. However, Jin explains that after more than three decades of the one child policy, retirees cannot expect as much support, and China’s pension system lacks the strength to pick up the slack. Another reason China’s households will avoid spending, is because their income’s share of GDP has been falling.

Jin describes two major problems, “First, China’s growth model is distorted, as it emphasises investment over employment growth and depends partly on wage suppression to subsidise production and exports. Second, financial repression has capped Chinese households’ savings at about a zero real rate of return.”

Ultimately, Jin doesn’t believe that China’s quest for higher domestic consumption is destined to fail, as China’s younger generation is optimistic about the future, and aware of their quality of life. They are more inclined than their parents to spend on services and nondurable goods. She explains that when they reach middle age, China’s consumption landscape may be completely different. In the meantime, “China will need to patient, recognising that the current generation is simply too fixated on saving to provide the kind of surge in consumption that is needed.”

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