China Has Problems, but Household Consumption Isn't One
In August, China reported year-on-year retail sales growth of 13.4 percent, the highest this year. Monthly retail sales data is a useful proxy for the country’s household consumption, the Achilles’ heel of the economy many analysts believe is in urgent need of improvement if economic rebalancing is to be achieved.
Compared to other economies, China’s consumption as a share of GDP is surreally low: 36 percent in 2012, compared to the world average of 60 percent. Critics argue that such a low consumption ratio will threaten growth sustainability as soon as Beijing stops pumping cheap credit into heavy industrial projects and real estate. Therefore, after a brief upturn in the share of consumption in quarterly GDP numbers in the first quarter of 2013, a return to investment dominance in the second quarter triggered charges that reform must be stalling.
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