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View all search resultsThe consensus on China’s economy is strong, and wrong
When one looks at Chinese household consumption per capita alongside comparable countries in terms of their postwar growth “take-off time,” the picture changes.
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Shipping containers are stacked on April 12, 2024, at a port in Lianyungang, in eastern China's Jiangsu province. (AFP/AFP)
I
s China’s development model short-changing domestic consumers? Although there is almost universal agreement that it is, that does not make it true.
Among the various forms that this argument takes, the simplest is based on the mercantilist–free trade dichotomy: China’s model is mercantilist and therefore preferential toward production and investment over consumption and welfare. For example, in Trade Wars Are Class Wars, Matthew C. Klein and Michael Pettis contend that there is a serious distributional conflict within China (“class wars”), with policymakers favoring elites and cronies in big business, and thus prioritizing profits over wage income. Alternatively, some argue that repressive labor policies are critical for the success of the Chinese and East Asian model more generally.
Exhibit A for all these arguments is the share of household consumption in Chinese GDP. Although this metric is lower in China than in the United States, it was respectably high until the early 1990s. That is when China turned mercantilist, running large current-account surpluses that brought the consumption share down dramatically. This metric bottomed out at about 35 percent in 2010, and stands at only 40 percent today — substantially below the US and even below comparable countries in East Asia.
But this often-cited metric is potentially misleading in three ways: It is of more interest to macro-economists than development economists; it does not assess countries at comparable points in development time (meaning at similar points in their growth trajectory); and it is probably of more interest to analysts than to Chinese consumers. The latter arguably care more about how their consumption is changing in real time than about the notional share of GDP or some counterfactual scenario envisioning an alternative development strategy.
That is why my 2011 book on China, Eclipse, offered an alternative metric. When one looks at Chinese household consumption per capita alongside comparable countries in terms of their postwar growth “take-off time,” the picture changes.
If consumption per capita is a reasonable proxy for the standard of living, Chinese citizens have done remarkably well, even better than their counterparts in the fastest-growing East Asian countries. For example, between 1978 and 2024, Chinese household consumption per capita grew by an astounding 7.6 percent per year, on average, compared to 5.2 percent growth in Japan, 5.7 percent in South Korea, and 6.2 percent in Taiwan over a comparable 46-year period. That makes China’s performance not just impressive but unprecedented.
Of course, several caveats are in order. China’s growth and consumption data might be dodgy. Averages can conceal sharp changes in income distribution, masking the median citizen’s real experience. And China started off at lower levels of consumption, which tends to flatter catch-up growth rates (at their starting points, other countries’ consumption was 3-5 times that of China). Nonetheless, the notion that the Chinese consumer is being short-changed is not consistent with reality.
