Opinion: China Needs a True Change of Course

The Financial Times argues that China must seize the opportunity presented by its recently announced stimulus package to bolster consumer spending at home and abandon the development model it has used up until now, or else:

The Chinese government recognises that it must build domestic consumer demand, but it is time for the leadership to put its money where its mouth is. Alas, the planned stimulus does not attempt to boost public and private consumption. It aims, instead, to keep the economy ticking over until it can start exporting again. This will not work. This is the golden opportunity to redirect the pattern of growth towards consumption and away from the previous massive reliance on exports and investment.

In a country with light household taxes, there is little room to do much with cuts. A cash rebate would be more effective. Public spending on schools and health services would also help, directly and indirectly. Since fears about paying for health and education keep savings high, this would also encourage household consumption.

China’s leaders were right to propose a fiscal stimulus. But they will be missing a chance for meaningful reform if they focus on pouring concrete, and do not look at promoting household spending, as well. China’s problem is more than a mere global downturn. Its development model is no longer sustainable. The time for change is now.

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