The painful shift from cheap labor to high consumption - Victor Shih

Victor Shih

China's economy is changing from cheap labor and export to domestic consumption. But the move away for wasteful investments is not an easy one, tells political and financial analyst Victor Shih in The Guardian.

The Guardian:

"The liberalised labour market contributed to high exports, which subsidised this extremely wasteful investment by the Chinese government," said Victor Shih of Northwestern University in Chicago. "Now China's trade surplus is shrinking, and shrinking much faster than a lot of people had anticipated." 

It has been hit by European and US woes, and its growing demand for food and oil must be met largely through imports. "The ability of net exports to subsidise wasteful investment will diminish – perhaps quite rapidly. That will create a big challenge for the Chinese government in the coming two to three years," said Shih. "It will take a few more years before consumption becomes the dominant factor to fuel China's growth."

More in The Guardian

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