This ramification is highlighted by the consistently high domestic absorption (private and public consumption and investment expenditures to GDP ratio) and the allocation switch from investment to consumption.

Today, it is private consumption in the household sector (70 of GDP) that is in trouble.

Low hanging fruit Consumption. Private consumption accounts for only about 37 of China s GDP the smallest share of any major economy.

Half of India s growth has come from private consumption, and less than 10 from external demand by contrast, 65 of China s real GDP growth comes from exports, and only 25 from private consumption.

Its imbalances have gotten worse as well, with the investment share of GDP approaching 50 and private consumption falling below 35 of GDP.

Rebalancing demand, from investment and exports to domestic consumption

To achieve this, China must increase domestic consumption s share of GDP.

No wonder domestic consumption cannot grow in a manner commensurate with GDP.

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.

Consider also what is happening to private consumption and retail sales.

This helps boost private consumption and investment.

The broad outlines of this transformation are well known a shift from export and investment led growth to an economic structure that draws greater support from domestic private consumption.

The financial services sector, which has been the fastest growing segment of the economy, will shrink.

Much has been made of domestic consumption as a driver of Chinese growth in the future.

To be sure, China s domestic consumption is not as high as it should be, standing at 49 of GDP in 2008, with household consumption accounting for only 35 .

If Asian domestic consumption increases, for example, global economic growth will depend far less on over consumption by debt laden Americans.

For China, this puts consumption in the range of 40 45 of GDP.

So a shift to greater domestic consumption was inevitable anyway.

There are other instruments available for increasing domestic saving and reducing consumption besides the fiscal balance.

On the contrary, private consumption fell to a record low 45 of developing Asia s GDP in 2010 down ten percentage points from 2002.

First, the production chain must shift from export dependence toward domestic consumption.

With the financial crisis, the Chinese economy s necessary adjustment towards more domestic consumption has become far more urgent.

Lack of robust credit growth will hamper private consumption and investment spending.

All of these changes will increase household consumption in both the short and long term.

Both countries external sectors have clearly been hit hard, while domestic consumption is stagnating.

During the boom, US consumption rose to more than 70 of GDP.

Whether Kuroda s assault will bolster domestic consumption and investment remains to be seen.

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

At nearly 70 of GDP, consumption in the US is too high.

Rebalancing demand, from investment and exports to domestic consumption

Their net effect will be to raise consumption as a share of GDP and to reduce the national saving rate.

But what China really needs is a greater effort to promote domestic consumption and lower the savings rate.

But, by raising the consumption share of its GDP, China will also absorb much of its surplus saving.

Moreover, China s aging population, and its strategy of boosting domestic consumption, will negatively affect global savings.

Another 40 of GDP comes from the private sector.

Households are over indebted and must save more.

Nor has domestic consumption been sufficiently expanded, leaving economic growth overly dependent on exports and foreign investment.

Natural gas is procured from Russian Gazprom (roughly three fourths of domestic consumption) and from Norwegian companies (most of the remaining one fourth).

The Board endorsed the plan to publish both preliminary and final PPPs and to publish in stages for consumption and the full GDP.

Indeed, private consumption in China has been growing in real terms at an annual rate of around 10 for the last seven years.

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.

Transforming China from an export driven economy to one that relies on domestic consumption requires two fundamental reforms.

This is particularly important for poorer and smaller developing countries in which domestic consumption and investment is a poor substitute for global demand.

What is missing is sufficient private consumption to power endogenous growth.

While the share of private and public consumption in GDP increased from 117 per cent in 1999 to 134 per cent in 2004, the share of total investment dropped from 43 per cent to 27 per cent.