A Healthy Path to Chinese Consumption Growth

The consumption discount rate should account for the possibility that, as consumption grows, the marginal unit of consumption may be considered to have less social value.

This implies that consumption growth will remain muted for some time.

The growth of apparent per capita consumption of steel in China in 2003 2004 has been compared by experts to that of Japan in the 1960s and the Republic of Korea in the 1980s.

This policy stimulus led to strong growth, in both consumption and investment, and economic activity recovered quickly.

From now on, consumption must grow much faster than GDP.

Some people may argue that investment growth without consumption growth will result in overcapacity and eventually lead to recession.

Academic research has shown that the national ACSI score is a strong predictor of Gross Domestic Product (GDP) growth, and an even stronger predictor of Personal Consumption Expenditure (PCE) growth.

Indeed, top oil producers are joining the top oil consumers with annual oil consumption growth rates above 5 .

This is not surprising, given the slowdown in consumption growth (car sales, for example, are suffering a prolonged decline).

Official estimates put annual GDP growth at 6.5 in 2018 2022, while Peking University s Michael Pettis, for example, regards 3 4 growth as consistent with continuous rapid consumption growth and the targeted increase in consumption s share of GDP.

Fourth, private consumption growth in the last few quarters does not reflect growth in real wages (which are actually falling).

Europe and Japan are in no position to take up the slack, and consumer sectors in the world s major developing economies especially China lack the scale and dynamism to take over.

There is a consensus that these abnormal demand patterns must change in the long term, as China moves to a consumption led growth model.

Not this time. The record plunge in consumer demand during the Great Recession has been followed by persistently subpar consumption growth.

But more than higher growth in income from labor will be needed to boost Chinese private consumption.

The benefits growing consumption and more jobs were immediate, whereas paying the inevitable bill could be postponed into the future.

As a result, a shift toward a new consumption based growth model one that emphasizes stability, inclusiveness, and sustainability is at the top of China s agenda.

But if exports continue to grow in the absence of consumption led import growth, distortions occur and the trade surplus and foreign reserves increase.

Mounting regional disparities, as well as the widening urban rural divide, impede household consumption growth, increasing the economy s dependence on exports and foreign investment.

In the industrial countries, expansionary budgets, coupled with low interest rates and elevated asset prices, has led to consumption or credit fueled growth, particularly in Anglo Saxon countries.

Savings could remain high, even as current consumption grows slowly, while the trade balance would be held in check by higher demand for imported capital goods.

The 2.1 consumption growth trend realized during the anemic recovery of the past two years could well be indicative of what lies ahead for years to come.

Its 12th Five Year Plan, enacted in March 2011, lays out a broad framework for a more balanced growth model that relies increasingly on domestic private consumption.

As mentioned above, these flows not only sustain consumption in home countries but also support investment activities and lead to higher output growth.

And lagging household income clearly contributes to China s trade surplus, because low domestic consumption tends to keep exports higher than imports.

Let s assume that costs to prevent additional accumulation of CO2 (and equivalents) come to 1 of GNP every year forever, and, in accordance with a fair amount of empirical evidence, that the component of the discount rate attributable to the declining marginal utility of consumption is equal to twice the rate of growth of consumption.

China s 7 growth target, while subject to a number of challenges, is based on maintaining private consumption growth of around 8 (while recognizing that exports and investment will not grow as strongly as before), thereby allowing the consumption share of GDP to rise.

Consumption

Most CO2 emissions result from the burning of fossil fuels coal, oil, and natural gas for energy, global consumption of which is rising as the world economy grows.

Second, persistent weakness in consumption and GDP growth puts the US economy on a much weaker growth trajectory than that which is built into the government s long term budget estimates.

With real consumption stuck on a 1 growth trajectory, the bulk of the US population understandably views economic recovery and job security very differently from those enamored of wealth effects.

Nevertheless, annual GDP grew by 8.7 , thanks to 16.9 growth in consumption (measured by gross sale of consumer goods) and a 33.3 surge in fixed investment demand.

as a treatment against consumption.

Due to the rapid growth of its economy, demand for steel has increased at very high rates. The major portion of the consumption growth is attributable to construction applications construction materials are estimated to account for over half of total steel demand.

Rachel Botsman The case for collaborative consumption

Catalyzing Consumption and Balancing Growth

Sustainable consumption and tourism

But domestic demand, which determines imports, consists not only of consumption, but also of fixed asset investment. Indeed, rapid growth in investment may translate into high import growth and trade deficits.

In the medium and longer term, the expected and hoped for increase in China s domestic consumption should be the most dynamic element of demand, with export growth continuing to slacken and investment remaining except for brief periods below 50 of GDP.

To promote the sale of household electrical appliances in rural areas, the government has begun providing a 13 price subsidy, not only benefiting rural consumption, but also boosting the growth of major industrial enterprises.

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Sustainable consumption and production patterns

Consumption 13 14

Over the last 30 years, in terms of the GDP growth rates, China has grown at twice the rate of India.