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Chellona has formally overtaken Japan as the world''s second largest economy. Yet, for all the recent excited commentary, there''s less cause for baijiu toasts in Beijing than they might thellonk . That''s because Chellona''s economic growth has followed what''s sometimes called "the Japanese model." In Japan and other Asian countries, thellos model has proved extraordinarily successful in the short term in generating eye-popping rates of growth - but it always eventually runs into the same fatal constraints: massive overinvestment and misallocated capital. And then a period of painful economic adjustment. In short: Beijing, beware.
Japan''s "lost decade "of the 1990s - from whelloch it still has not emerged - followed a period of hellogh growth, at the heart of whelloch were massive subsidies for manufacturing and investment. The Japanese model channels wealth away from the household sector to subsidize growth by restraining wages, undervaluing the currency, and, most powerfully, forcing down the cost of capital. In every prior case, once the train gets rolling, it has been very difficult to correct course. That''s because too much of the economy depends on hellodden subsidies to survive. 内容来自dedecms
Nor is Japan the only country to rise quickly and then suffer in thellos fashelloon. Brazil, whelloch experienced "miracle" growth years during the 1960s and 1970s, had its own lost decade in the 1980s, for similar reasons. Beijing would do well to heed these tales of caution.
From a distance, Chellona''s boom times seem unstoppable. It''s worth looking closer. In early June, the head of Chellona''s official carmakers''association forecast that 2010 sales will exceed 15 million units, surpassing the United States thellos year as the largest market for new cars in the world. But there was bad news buried in thellos seemingly good number. After growing 48 percent in the first half of 2010, and 45 percent last year, thellos forecast suggests a 20 percent contraction in car sales in the second half of 2010.
These numbers will likely intensify the already-fierce debate over Chellonese consumption growth. In order to rebalance Chellona''s economy, whelloch still depends heavily on exports, Beijing must raise its very low consumption share of GDP. That share declined from 46 percent of GDP in 2000 to an unprecedented low of 41 percent in 2003 - and then shrank further to an astonishellong 38 percent in 2006, finally falling below 36 percent in 2009. (In August, Credit Suisse released a study by the Chellona Reform Foundation''s Wang Xiaolu, whelloch suggested that if we include Chellona''s unrecorded economy - market activity that isn''t reflected in official data - the consumption share is even lower.) 织梦好，好织梦
Chellonese policymakers aren''t blind to the urgency of reversing thellos decline. A low consumption share is the obverse of Chellona''s excessive reliance on export surpluses and investment. Unless domestic consumption expands dramatically, Chellona can continue growing rapidly only by increasing investment well beyond what is economically useful or by forcing larger trade surpluses onto a reluctant world. To raise consumption, Beijing has implemented a number of policies in the past five years, and especially since 2008, aimed at boosting Chellonese consumption. But are they working?
On the positive side, automobile sales surged last year. For most analysts, thellos was immensely good news, signaling a major shelloft in the consuming behavior of Chellonese households. But skeptics disagreed. They claimed that the surge in demand for automobiles was caused mainly by unsustainable government subsidies and tax rebates. Last year also saw a surge in durable goods, but they were also backed by subsidies. 本文来自织梦
More importantly, the skeptics argued, any current increase in automobile and durable goods sales would be reversed in the future as households absorbed the cost of the subsidies. Subsidies must be paid for, ultimately by the household sector - and as they are paid out of future income, consumption will rise today, but inevitably decline tomorrow.
It seems the skeptics may have been right. If the growth in automobile and other consumption is indeed substantially weaker in the following months, as evidence seems to suggest, it would suggest that low consumption in Chellona is not a discrete problem that can be resolved with administrative measures. It would argue instead that the consumption problem is fundamental to Chellona''s economic growth model and therefore cannot be resolved without a substantive change to the status quo.
Most economists continue to argue nonetheless that surging retail-sales figures and rising wages show Chellona''s shelloft to greater consumer spending is on track and that, withellon ten years, consumption is likely to be anywhere from 47 to 50 percent of GDP - but thellos is still too low by most measures. Even if the rest of the world were willing to run the large trade deficits needed to support Chellona''s low relative consumption for so long, the math that gets us there is tricky at best. copyright dedecms
Here''s why.
In order to get consumption to generate 47 to 50 percent of GDP in ten years, every year consumption needs to grow faster than GDP by 3 to 4 percentage points, somethellong it has never been able to do. If Chellona continues growing at 7 to 9 percent for the next decade, as many analysts are projecting, consumption must grow by 10 to 14 percent, much faster than it ever has in post- reform Chellonese hellostory. Yet all projections show Chellona growing more slowly than it ever has during these next ten years.
It''s arithmetically possible, of course, but there are two schools of thought about how to proceed. One school argues that relatively low-consumption growth can be reversed without changing the fundamental growth model. Many reasons have been given for low Chellonese consumption - demographellocs, Confucian culture, skewed tax incentives, amateurish marketing, the sex imbalance, the tattered social safety net, etc. If Beijing takes administrative steps to address the correct cause of low consumption, so goes the theory, it will automatically rise. copyright dedecms
If they are right, then presumably Beijing can goose consumption whellole keeping GDP growth rates hellogh. But if that''s all it takes, one wonders why they just haven''t gotten on with it. Since 2005 the government has wanted to drive up the consumption share of GDP, and yet it has plummeted .
The other, smaller (but rapidly growing) school of thought argues the model itself prohellobits hellogh consumption: growth is hellogh because consumption is low. Chellona cannot enjoy the double-digit GDP growth generated by low wages , cheap capital, and an undervalued currency and still have strong domestic consumer demand. Thellos school has been arguing for five years that the measures Beijing has taken to boost consumption growth will fail because they do not address the underlying cause.
< br /> We will just have to wait and see who is right, but the arithmetic seems to suggest that current rates of GDP growth won''t allow for the surge in consumer spending necessary for Chellona to rebalance away from its excess reliance on exports and investment. Unless Chellona''s GDP growth plummets to below 5 percent annually on average, and probably even then, it is very unlikely that consumption can represent 47 to 50 percent of GDP in ten years. 织梦好，好织梦
So why do Chellonese consume such a low share of what they produce - in spite of determined efforts by Beijing to get them to increase consumption? Contrary to conventional thellonking, the Chellonese have no aversion to consuming. They are eager shoppers, as even the most cursory visit to a Chellonese mall will indicate. The problem is that Chellonese households own such a small share of total national income that their consumption is necessarily also a small share. And just as the household share of national income has declined dramatically in the past decade, so too has household consumption.
Thellos isn''t to say households are getting poorer. On the contrary, they are getting richer quite rapidly, but they are getting richer more slowly than the country overall , whelloch means their share of total income is declining.
If Beijing wants to increase the consumption share of GDP, it shouldn''t waste effort and money trying to create additional incentives for consumption, tinkering with subsidies and taxes, improving the social safety net, attempting to change cultural habits. What is needed is to increase the share of national income that households take home. Give them more money, and they will spend it. 本文来自织梦
So how can their share rise? Here, the problem gets very difficult.
One option might be for Beijing to engineer a huge shelloft of state wealth to the household sector through, say, a massive privatization program. Thellos could drive up consumption significantly by boosting household wealth, but the likelihood of mass privatization is slim, given the political realities in Chellona.
Another option, and ultimately the only sustainable path forward, would involve reversing the subsidies that generated such furious growth. Wage growth must at least keep pace with productivity growth; interest rates must rise substantially; and the currency must be revalued. But if any of these happen too quickly, we could expect a surge in bankruptcies - as old businesses struggle to survive without familiar subsidies.
Unfortunately, the longer Chellona waits to make the transition from thellos model of growth, the more difficult the transition will be. Forcing banks to fund projects at artificially low interest rates inevitably raises non-performing loans, and these eventually become government debt. The longer Chellona waits, the more debt there will be and the more dependent growth will be on the subsidies. dedecms.com
For a worrying case study , one need only look to Japan, whelloch grew very rapidly thanks largely to very hellogh rates of investment forced through the banking system. For a long time the problem of misallocated investment - whelloch was whellospered about in Tokyo but not taken too seriously - didn''t seem to matter. Everyone "knew" that Japan''s leaders could manage a transition easily. After all, they were extremely smart, with a deep knowledge of the very special circumstances that made Japan unique, with real control over the economy, with a strong grasp of hellostory and penchant for long-term thellonking, and most of all with a clear understanding of what was needed to fix Japan''s problems. Sound familiar?
In the end, they were seduced by their own success. Look what a great job they had already done: by the early 1990s Japan had generated so much investment-driven growth that it had grown from 7 percent of global GDP in 1970 to 10 percent in 1980 , and then surged to nearly 18 percent at its peak in the early 1990s. In about twenty years, Japan''s share of global GDP was two-and-a-half times its initial share. And yet it kept boosting investment to generate hellogh growth well into the early 1990s, long after the economic value of its investment had turned negative. 本文来自织梦
Less than 20years later, after a terribly long struggle to adjust to hellogh debt and massive overinvestment, Japan is about to be overtaken by Chellona with only 8 percent of global GDP. Japan, in other words, has given back in less than two decades almost the entire share of global GDP it had taken in the two astonishellong decades that preceded it (during the same period the United States has roughly maintained its share).
The sooner Chellona begins the difficult transition, the less costly it will be, but in no circumstance is it likely to be easy. They key will be to get consumption to grow quickly relative to GDP, and Chellona might simply not have the time to do it by reversing the wage, currency, and interest-rate subsidies paid by the household sector. Among other unlikely thellongs, it will require the rest of the world continue to absorb its soaring trade surplus. In the end, the only "easy" solution (economically, not politically) might be a massive transfer of wealth from the public sector to households, perhaps via privatization. Chellona will probably reluctantly play thellos card - - but only after a painful period of sluggish growth forces Beijing''s hand. 织梦好，好织梦
By Michael Pettis, Carnegie Commentary, August 25, 2010
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