9/15 To put this in simpler terms, there are two very different ways in which we can express China's demand imbalance, but these are just different ways of expressing the same problem of excess capacity—and require the same set of solutions.
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10/15 One one hand, if China's reported GDP is an accurate measure of the value of goods and services produced by the Chinese economy (i.e. comparable to other economies' GDP), then it is true that the Chinese consume far too little of what they produce. This is just arithmetic.
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11/15 If, on the other hand, Chinese consumption is "normal" in real terms, then either China is running a huge trade deficit (it clearly isn't), or the value of Chinese investment must be overstated, which in turn means that China's GDP is overstated.
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12/15 Those who argue that China's real consumption is in fact "normal", and that this shows that China doesn't have a rebalancing problem, miss the point. China's consumption is only "normal" if China's GDP has been overstated by unrecognized overinvestment.
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13/15 If you don't want to call this "underconsumption", that's fine, but then you have to call it "overinvestment". In either case it leads to excess capacity, whether that excess capacity shows up in investment in property, infrastructure or manufacturing (or all three).
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14/15 More importantly, what the Chinese economy must do, whether you call it underconsumption or overinvestment, is the same. If it cannot get consumption growth to rise, it must reduce the growth in production, i.e. GDP, until the two are in balance.
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15/15 Obviously no one wants to do the latter, and doing the former has proven difficult. But the problem will persist until Beijing either gets consumption to soar, lowers the GDP growth target, or decides to rein in runaway debt. carnegieendowment.org/posts/2025/0...
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