China Herald: Tough decisions for China's leadership ahead

Sara Hsu

In October China's leadership has to decide about some tough economic dilemma's. Financial expert Sara Hsu paints at Triple-Crisis some of the options to avoid a failure of the efforts to shift from an investment-driven to a consumption-driven economy.

+Sara Hsu:

The current experiment with boosting on pushing up domestic consumption is China’s urbanization policy that has moved rural residents to urban areas, with a small chunk of cash (not enough to cover housing costs) and no jobs in place. The process has started in Shaanxi Province and will likely be announced formally in the October Third Plenary Meeting of the Central Committee of the Chinese Communist Party. Domestic consumption has (surprise!) not been boosted by the urbanization process since residents lack a steady source of income.

So what can be done? There are two sources of growth that may “save” China from a woeful pace of growth. The first is further government stimulus. The government has committed to some stimulus to shore up the economy to make up for a shortfall in GDP. Further stimulus will bolster this commitment and keep the economy going. The second is a rebound in export demand. If Europe can pull out of its ongoing crisis and increase its demand for Chinese products, all may not be lost. This would be the easiest way to support China’s flagging economy until the administration is able to restructure China’s economy toward domestic consumption. Restructuring, after all, takes time, and time, if it can be bought, will be worth every penny. In the meantime, some analysts believe that a sudden contraction in GDP may be in the works. Although Premier Li’s government is not expected to allow for a “hard landing,” its dedication to restructuring will usher the Chinese economy into new territory. Change—and uncertainty—are in the air as we anxiously await the formalized plans.

More at Triple-Crisis.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers' request form.

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