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Growth model

Updated: 2013-10-04 10:58
By Andrew Moody and Lyu Chang ( China Daily)

"Brazil has a consumption to GDP ratio of around 80 percent, similar to a European country, but the problem is that it is not sustainable, and they are becoming indebted," he says.

He points out that Singapore proves that to have fast consumption growth a country does not have to have a high consumption to GDP ratio since its is around 50 percent.

Growth model

"Singapore's annual consumption is growing faster than that of Japan where consumption is 80 percent of GDP and that is because it has a higher growth rate than Japan which therefore drives its consumption," he says.

Kuijs at Royal Bank of Scotland does not believe that Singapore is a good role model for China since it is a city state not really comparable with the world's second-largest economy.

"Singapore is a bit like London in that it has a lot of foreign company headquarters and a big professional population and is very rich. It is not an example China can really follow."

Michael Spence, former Nobel Prize winner and now professor of economics at the Leonard N. Stern School of Business at New York University, is one who believes Lin is wrong to downplay the importance of domestic consumption.

"The supply side shifts are important and necessary, but for China not sufficient. The demand and income side restructuring is also a key component," he says.

He agrees that there should not be major credit expansion to fuel consumption but higher domestic consumption is a fundamental part of rebalancing the economy.

"The demand side is also critical. Without it, the non-tradable sectors (such as professional services and other activities associated with a developed economy) will be slow to develop and that will get in the way of growth."

Kwok at HSBC, however, says the government has a major challenge on its hands to boost domestic consumption and that it will take time

"It has already started to adopt policies to reflate consumption as a key driver of economic growth. That said, not only will the delivery of any meaningful result likely take at least another five to 10 years - and need at least another five-year plan - but the process has to unfold gradually," she says.

"The criteria that have to be ticked along this process are not ones that can be completed overnight."


 Growth model

Mark Wessels / for China Daily

( China Daily Africa Weekly 10/04/2013 page1)

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