The economic data of China in January-February were better than anticipated. Meanwhile, China presented on Sunday a ‘special action plan to boost consumption’ through increasing income, the stabilization of housing and actions markets, and the improvement of medical and pension services. In fact, rebuilding the economy moving away from investment towards internal consumption has been an explicit objective of China since the central conference of economic work of December 2004. However, three important structural restrictions prevent any significant effort to increase the role that consumption plays in the economy, BBH FX analysts report.
Fiscal reforms to help China achieve consumption investment
“i) Low homes of homes. Household revenues in China represent 61% of GDP, while in the West Households retain a majority of what they produce, typically 70-80% of GDP. The growth model promoted by China’s investment means that local governments capture a significant part of economic production due to their control over land sales and investment in infrastructure.”
“ii) high precautionary savings. Households save a significant part of their income (more than 30% of GDP) in part due to weak social security networks, the fall in labor security and an aging population. In addition, wealth is concentrated among the highest income groups that tend to save more instead of spending. III) high levels of household debt. homes, reaching 145%.
“In our opinion, fiscal reforms that lead homes to have a most of the economic cake in combination with a gradual revaluation of China’s currency could help China achieve that long -awaited change in investment to consumption.”
Source: Fx Street
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