Over the past thirty years, China’s GDP has soared from $140 billion to nearly $6 trillion. This phenomenal growth has been sustained at double-digit rates largely through a reliance on exports from heavy industry. Recently however, slow growth in the US and a renewed crisis in Euro zone countries have shown China that it cannot count on exports forever. The new leadership, headed by Xi Jinping, must now oversee a transition to an economy that relies on domestic consumption over export based industrial production.
With the world’s largest population one would think domestic consumption should not be difficult to achieve. Wang Shiling, who runs a mall in Linyi, perhaps put it best when he said, “people still need to consume living necessities. Toothpaste, notebooks, basins, you name it. Don’t forget that China has 1.3 billion people!” Even with such a large population though, domestic consumption only constitutes about 37% of China’s economy (the rate in developed countries is closer to 70%).
Economic indicators also suggest that China is on the path to rebalancing the economy. Since 2009, wages have been on the rise while government stimulus packages have focused on infrastructure and construction, which not only employ workers but aid the movement of goods and services throughout the country.
For all this though, China still faces many barriers to growing domestic consumption. The average Chinese may be earning more than before and stringent restrictions on the financial sector have recently been (ever so slightly) relaxed, but rebalancing the economy is about more than salaries and interest rates. In order to spur wider consumption, the government must reform current policies to encourage citizens to spend more and local businesses to expand productivity.
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