hina’s efforts to rebalance its economy have been an abject failure. Nearly two decades after former premier Wen Jiabao bemoaned the Chinese economy’s excessive dependence on investment- and export-led growth, the problem has gone from bad to worse. The lack of meaningful consumer-led rebalancing implies increased reliance on these time-worn sources of economic activity, raising critical questions for China and the rest of the world.
As the first Western economist to stress China’s perspective on the need for such rebalancing, I am especially disappointed to write these words. I remember sitting in a Beijing meeting room in March 2007, watching Wen’s press conference following the conclusion of the National People’s Congress.
There was a small group of us in attendance, including some senior Chinese officials, when Wen uttered his now-famous critique of China’s economic structure: While seemingly strong on the surface, he cautioned, the economy was becoming increasingly “unstable, unbalanced, uncoordinated and unsustainable”.
There was an audible gasp from the Chinese officials present in the room, who translated the premier’s remarks and underscored their significance, presaging a vigorous debate in the country’s policy community.
I went back to my hotel room and wrote my first piece on China’s rebalancing imperative, which became the basis for my testimony before the United States Senate Finance Committee nearly two weeks later.
I stressed China’s newfound sense of urgency to shift its development model from investment and exports to consumer-led growth. I underscored the other structural changes this shift would entail: moving from manufacturing to services and from excess saving to saving absorption, which would lower the current account surplus and fund a larger social safety net.
Every Thursday
I took Wen’s “four uns”, as I later dubbed them, as an important signal from the Chinese leadership of its readiness to do what was necessary to rebalance the economy. I was convinced that it was a matter of when, not if.
