“GDP growth rates over the next few years of 7.5 percent, or even 7 percent, will be impossible to achieve. Until now, such gaudy statistics have been produced by ballooning investment. With so much of that investment now creating less economic value than debt, China has experienced an unsustainable expansion in credit. The country is perilously vulnerable to a chaotic adjustment…
Why? Consider what it means for China to rebalance. With household consumption at an astonishingly low 35 percent of GDP, in order to raise that figure to even 50 percent of GDP within a decade — still by far the lowest proportion of any major economy in the world — consumption growth would have to exceed GDP growth by close to four percentage points every year.
An average annual growth rate of 7.5 percent, in other words, would require growth in consumption to exceed 11 percent. How could China possibly get citizens to start spending that much faster? In fact, consumption now contributes less to GDP growth in China than it did during the first half of 2012.” (emphasis mine)
My comment: This last part is truly incredible. The Chinese government has publicly stated for the last few years that they want to rebalance the economy towards household consumption and away from infastructure/capital spending. It does not bode well for China that households aren’t contributing more to GDP even as the investment-led growth model appears to be finally hitting the wall. Prepare for some difficult adjustments.