Is rising household debt helping China to rebalance?

CHINA FINANCIAL - Report 02 Oct 2018 by Michael Pettis

Special points to highlight in this issue:
* It is not meaningful to refer to a rebalancing of the Chinese economy if the growth in the consumption share of GDP is powered by rising household debt. The goal of rebalancing is to allow China to grow without a worsening of the country’s debt burden. Consumption growth driven by household debt simply changes the locus of debt creation.
* As I discussed in the August 11 issue of this newsletter, when we summarize the policy options that Beijing has, there are effectively only three things it can do. It can allow the economy to slow and unemployment to rise. It can allow the debt burden to grow, either by funding non-productive investment or household debt. And it sustainably can boost consumption by transferring wealth to the household sector, which is politically difficult.

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