The recently released data on China’s 3rd quarter growth seems optimistic on the surface – while many analysts have been predicting a gradual slowdown in the Chinese economy, 3rd quarter figures show it accelerating from 7.5% growth in the previous quarter to 7.8% this quarter. However, rapidly expanded credit enacted earlier this year is mainly responsible for this acceleration – industrial output, energy output, and exports all slumped in the same period. Conversely, investments in transportation infrastructure and sewage systems skyrocketed. These figures lead to the conclusion that China is still heavily dependent on investment for economic growth and that it has yet to begin a long-awaited rebalance away from investment-led growth to consumption-led growth.
This post will investigate China’s rebalancing from a historical perspective, comparing China’s consumption to GDP ratio to that of other countries using data from the World Bank, and will end with some conclusions that can be derived from this comparative historical analysis. Continue reading