Li Keqiang Quotes

With investment levels so high and already being misallocated on a massive scale, the central government might have preferred higher consumption. But China’s myriad institutional constraints, which we will discuss in more detail later in the chapter, meant that consumption could not have grown quickly enough except through a surge in household borrowing. Unsurprisingly, given what the Chinese leadership had just seen occur in the United States, there was no interest in a similar experience. That is why the government chose to focus on boosting investment. The most straightforward response to the global financial crisis was a massive boost in infrastructure and housing investment to offset the decline in foreign spending. This simultaneously magnified China’s long-standing imbalances while shifting them inward. China was able to sustain growth even as its current account surplus fell at the cost of a nearly unprecedented surge in Chinese indebtedness. Unproductive investments have failed to pay for themselves.2 The danger is that the Chinese government, having reached the limits of its ability to generate rapid growth through debt-funded investment, will once again attempt to shift the costs of its economic model to the rest of the world through trade surpluses and financial outflows. The only way to prevent this is to rebalance the Chinese economy so that household consumption is prioritized over investment. That means reversing all of the existing mechanisms transferring purchasing power from Chinese workers and retirees to companies and the government—reforms at least as dramatic and politically difficult as the reforms implemented by Deng Xiaoping beginning in 1978. Unfortunately for China, the choices of the past few decades have become politically entrenched. It is easy for an antidemocratic authoritarian regime to suppress workers’ rights and shift spending power from consumers to large companies. Stalin did it, after all. The problem is that years of state-sponsored income concentration creates a potent group of “vested interests”—Premier Li Keqiang’s preferred term—that will fiercely resist any reforms that would shift spending power back to consumers. Any successful adjustment