To read the original version of this comment in the original context at Macrobusiness.com.au click this link. (link maybe locked – but there is a free trial available)
No major impediments to the Chinese government ‘re-balancing’ the economy towards consumption and services and away from concrete and steel stuff.
All they need to do is to allow (i.e. one of the joys of being authoritarian) wages to rise at a steady rate and the citizens of China will do the rest. Like most people around the planet the average person in China is quite capable of applying financial resources to improving their lives as they see fit. (Yep – consumer sovereignty – a hate word for technocrats and know-all’s right around the world)
Sure this will put their export industries under pressure but providing they can maintain their trade balance neutral or close to it, those industries can be re-orientated (i.e they find new domestic customers) towards domestic production – just at a lower, less quality or feature rich, price point.
Of course they need to keep an eye on inflation but that may be less of a problem considering the deflationary pressures being exerted by their energetic credit growth in recent years. Experimenting with a modest and undeclared program of some mild variant of “QE for the People” seems somehow appropriate for the CCP.
The only real obstacle for China is overcoming the pressure to join the western orthodox economist club of magnificent theory that just doesn’t work in practice – or at least doesn’t work without massive unnecessary cost.
Categories: Macrobusiness
The Glass Pyramid 
I’m not as convinced by this soft landing, China rebalancing story, I think the deflation in Europe is biting. Most companies in China aren’t Chinese and aren’t trying to cater to that market. They are European and American and the products produced in China are sold in those markets. No demand no need for China to produce….
LikeLike
I agree speculating on what may or may not happen in China is only possible if you watch a lot of late night China TV on Foxtel with the sound turned down (not sure if PF renewed his subscription!) .
While “QE for the People” almost sounds like some communist plot from central casting I think the comrades may be too far advanced along the capitalist road to really give it a good shake.
Having said that, any government action that has the effect of limiting the number of people getting sacked or providing them with decent income support is a form of “QE for the People” and the CCP still seems to understand the politics of hunger. So they may do what it takes to ensure the population has sufficient spending power.
As for all those western companies, if China is no longer externally competitive (and becoming less competitive seems about as bad as it will get as wages rise) those factories may well move off shore in search of the next sweat shop work force.
But while turning an ipad factory into a toaster factory may be unlikely what is fairly likely is that all those unemployed engineers and process workers will become the baristers, waiters, psychologists, naturopaths, gym operators, celebrity chefs, back rub merchants and all those other service providers that are the mark of an advanced ‘economy’.
An economy based on services only needs people with money in their pockets to pay for them and people willing to provide them. A smart government unencumbered by ideology will, subject to inflation and the external account, make sure that people have money to pay for all the services and domestically produced goods they desire.
Whether the CCP are smart enough to use fiat to keep money in circulation or whether they have become obsessed with debt based forms of monetary management and episodes of random austerity is the $64,000 question.
Pass the popcorn!
LikeLike