China needs to shift its economy from state investments to domestic consumption to survive. But can China withdraw that kind of power from state institutions, wonders political and financial analyst Victor Shih in the Financial Times.
The Financial Times:
Real structural change involves drastically reducing the level of state-led investment, as well as subsidies to the state sector. Because many subsidies to the state sector ultimately come from households, including an inflation tax, low bank rates, and land seizures, the diminution of such subsidies will decrease the burden on households.
This process will ultimately increase consumption’s contribution to GDP growth and increase household demand for all goods, including imported goods. This process will over time bring about both internal and external rebalancing.
Yet, in the short-run this restructuring involves drastically reducing state investment’s contribution to growth.
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