2. China is transitioning to a greener, more inclusive, more consumer and service based, and less credit-driven economy.
3. Below are 6 charts explaining the key areas involved.
MIXED PROGRESS
1. External rebalancing has advanced well, while progress on internal rebalancing has been mixed, with substantial progress on the supply side, moderate progress on the demand side, and limited progress on the credit side.
2. Rebalancing on income equality and environment has also been mixed, with the energy intensity of growth falling and labor’s share of income rising, but income inequality and local air pollution remaining very high. The key areas involved can be summarised in the scorecard below.
CONSUMER GROWTH
1. Until 2011, the reduction in the external imbalance was reflected in a growing internal imbalance as the investment to GDP ratio rose to higher levels, reflecting the strong fiscal stimulus. Such rotation could be observed in Chart.
DE-INDUSTRIALISATION
1. China has made substantial progress on switching from industry to services. The speed of its transition is in line with international experience
CREDIT TROUBLE
1. Progress has lagged on reducing reliance on credit with the amount of new lending provided for each additional unit of output, has more than doubled since the global financial crisis.
POLLUTION
1. While the energy intensity of output has fallen, air pollution remained very high in cities. Similarly, income inequality remains very high, though labor’s share of GDP is rising.
FALLING SAVINGS
1. With population ageing and the envisaged strengthening of social safety nets, household savings are expected to fall gradually and consumption to rise allowing investment to moderate while keeping the current account balance broadly stable.
2. The importance of the services sector will likely continue to increase, helping reduce environmental pressure and increase labor’s share in national income.
(Source: IMF )
