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China: Toward a Consumption-Driven Growth Path

Listed author(s):
  • Nicholas R. Lardy


    (Peterson Institute for International Economics)

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    China's decision to transition away from growth driven by investment and a growing global trade surplus toward one more dependent on domestic consumption is laudable. But to date China's initiatives have been too modest to change its underlying growth dynamic. China's external surplus continues to balloon and, short of a US recession, seems likely to expand further in 2007. Household consumption as a share of GDP continued to decline in the first half of 2006. Despite much lip service to increasing budget outlays on social services, little evidence of a fundamental shift in government spending has emerged. So Chinese households' precautionary saving persists. There is little evidence of a more flexible exchange rate and increased independence of monetary policy that would allow higher domestic interest rates. These and other factors suggest that China's transition toward more consumption-driven growth is likely to be substantially delayed.

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    Paper provided by Peterson Institute for International Economics in its series Policy Briefs with number PB06-6.

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    Date of creation: Oct 2006
    Handle: RePEc:iie:pbrief:pb06-6
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