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Reshaping the Chinese growth model – a formidable challenge of the 12th five-year plan

Author(s): Annika Melander and Moritz Rudolf, EEAS Beijing

Reshaping the Chinese growth model – a formidable challenge of the 12th five-year planpdf(295 kB) Choose translations of the previous link 

Private consumption is a key component in the rebalancing of growth that China is seeking, and a challenging one. Not only for the 1.3 bn. Chinese citizens, but it could make an important contribution in addressing global imbalances. Understanding what drove the consumption share down to a mere 36% of GDP in China is thus vital.

This brief explores the many reasons for the high precautionary savings that followed in the wake of the reform process in China. In particular, the privatisation wave of State-Owned Enterprises in the late 1990s caused many millions to not only lose their jobs, but also their social-security coverage. This boosted precautionary savings and contributed to the more pronounced fall of the consumption share noted during the last decade.

The brief also highlights how relatively weak total income growth played a role, stemming above all from sustained low wage growth.

Looking ahead, reform ambitions will be central to the upcoming five-year plan. Financing constraints, especially at the local level, suggest that these efforts risk being constrained in size or coverage.

Thus, while policies are set to go in the right direction, progress may prove slow and/or incremental. A rebalancing of the wage/profit share appears more likely in the short term.

(ECFIN Economic Briefs 12. February 2011. Brussels. pdf. 9pp. Tab. Graph. Ann. Bibliogr. Free.)

KC-AY-11-012-EN-N (online)
ISSN 1831-4473 (online)
doi: 10.2765/58542 (online)

ECFIN economic briefs are occasional working papers by the European Commission’s Directorate-General for Economic and Financial Affairs which provide background to policy discussions.

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