Should China Transformed Into a Consumption-Driven Economy?
By Lenn T. Lin
January 13, 2013
Ports of Shanghai, Public Domain/WikiCommon
The World Bank forecasted a 7.7% GDP growth rate for China in 2012 after a revision to their previous forecast rate of 8.2%. However, this is not to say the percentage is low considering most countries around the world would be more than satisfied to have a rate of 1-2%. This slowdown has provided a platform for many economists around the world in jumping the crash bandwagon and to further their sentiments that China would not survive with the current model of investment-driven and needs to adopt the “standard” consumption-driven model for its economy.
Consumption-driven model provides an ample profit potentials for Chinese companies and as a domino effect; it would provide income and jobs for workers. There are many positives of a consumption-driven economy and based on western economist consensus, it is the most stable form of economic models. This consensus has prompt the Chinese government to push their economy toward this model in the 12th five-year plan. However, if they carefully examine the reasons behind the global financial crisis, they might rethink again about the plan and the future.
As most economists know, consumption and capitalism goes hand in hand and that is the accepted economic norms. Nevertheless, this model often evolved into excessive consumption due to the rapid growing influences of corporations and their advertisements which promotes indulged lifestyles. As a result, we have seen the increase in careless borrowing just to sustain the model in countries such as the United States, Greece, and others, whom have plunged into deep recession during this global financial crisis with pilling debt.
The current model China is in, relies heavily on Investment. Investment provides temporary capital injection and employments. Investment is good and might be better than consumption if it creates productivity which every economy should pursue. Goods and services are the end result of productivity and by encouraging investment towards this regard, we would see a nation with higher export than import. This is no surprise that countries like Japan, Germany, and China have excess money due to their high productivity level while countries that are in recession at the moment tends to borrow more due to their low productivity. The reason being that consumption is more likely to drive productivity offshore, and China should not follow the path of those who have failed. A productive economy driven by a mix of consumption and investment is the prime ideal model in which China might succeed more in.
A culture of cautiousness in money usage and belief in the productivity theory of Confucius should not be corrupted by the worst aspect of Capitalism, that is excessive consumption. There is a need to change the notion that a total dependency on consumption would worked out in any nations. If anything, we should know that everyone has special needs and unique wants, and China or any countries in the world should reform itself on the basis of viability and long-term benefits.