China's Consumption Paradox: Causes and Consequences

Abstract

A Beijing-based American authority on China's economy and patterns of consumption presents a study of the causes and consequences of the ongoing consumption paradox in China (namely, how a declining private consumption share in GDP can be accompanied by rapidly rising per capita private consumption). The paper analyzes and discusses the country's consumption in comparative perspective. The causes of its decline relative to GDP are said to be consistent with the experience of other postwar Asian economies, notably of Japan and South Korea at equivalent stages of their development. Among the reforms to support consumption growth, the author notes changes in industrial policies in favor of services, reduction of monopoly rents and artificially low interest rates in the financial sector, as well as redeployment of excess savings of state enterprises in welfare spending.