Toward Higher Household Consumption? An Up-to-Date Analysis of China's Economic Transition Asie.Visions, No. 41, July 2011
For more than two decades, China's economy has been growing at an average rate of close to 10 percent. As a result of this stellar performance, China ascended to the rank of the world's second largest economy in 2010, surpassing Japan.
Despite these remarkably high figures, the share of consumption in China's total expenditure has been low. China's economy relies much more heavily on exports and fixed government investments. If China continues on the same path, economic growth would not only become more vulnerable but also unsustainable.
In order to achieve sustainable growth, China needs to rebalance its economy to rely more on domestic consumers. The 12th Five-Year Plan, approved in March 2011, is designed to facilitate this shift by putting in place several large scale measures, including the improvement of the social safety net.
But transforming the nation's growth model will take time and effort. There are significant obstacles to boosting domestic consumption - such as low household income for instance - that government measures may be unable to effectively bypass.
This paper presents these current obstacles in detail and assesses the responses proposed by the 12th Five-Year Plan.