China – The Next 10 Years

“China’s remarkably rapid growth rates during recent decades have largely been achieved by keeping the rate of wage growth below productivity growth, maintaining an artificially low RMB exchange rate and repressing the interest rates paid to savers (Jain, 2014). These policies have generated a massive wealth transfer from households to enterprises. Rebalancing the economy in order to increase consumption will require a reversal of course (Jain, 2014). Attempts to engineer such a reversal have met with stiff opposition by the elites which have richly benefited from the current system. The political power of these elites (referred to in China as “vested interests”) may be gauged by the fact that notwithstanding the virtually unanimous backing of the policy of economic rebalancing by senior Party members at the Third Plenum of 2003, virtually no meaningful growth in domestic consumption as a percent of GDP has occurred in the interim (Economist, 2014). To overcome this resistance, President Xi Jinping may be forced to resort to stricter Party discipline and a greater centralization of political power. Internal Party battles such as the 2013 corruption conviction of formerly powerful Bo Xilai may indicate that this process is already under way (Economist, 2014).”

Full Report China – The Next 10 Years

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