• 2 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 2 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 2 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 2 days Schlumberger Warns Of Moderating Investment In North America
  • 2 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 2 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 2 days New Video Game Targets Oil Infrastructure
  • 2 days Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 3 days British Utility Companies Brace For Major Reforms
  • 3 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 3 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 3 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 3 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 3 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 3 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 4 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 4 days Russia, Saudis Team Up To Boost Fracking Tech
  • 4 days Conflicting News Spurs Doubt On Aramco IPO
  • 4 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 5 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 5 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 5 days China To Take 5% Of Rosneft’s Output In New Deal
  • 5 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 5 days VW Fails To Secure Critical Commodity For EVs
  • 5 days Enbridge Pipeline Expansion Finally Approved
  • 5 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 6 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 6 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 6 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 6 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 6 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Stuart Burns

Stuart Burns

Stuart is a writer for MetalMiner who operate the largest metals-related media site in the US according to third party ranking sites. With a preemptive…

More Info

Why GDP should not be Trusted for Measuring Social Satisfaction in China

Why GDP should not be Trusted for Measuring Social Satisfaction in China

It has long been common lore that China has to maintain GDP growth of something like 7% in order to avoid social unrest, but a fascinating article in the FT by Michael Pettis debunks this theory and suggests that, in fact, we are looking at the wrong measure altogether when we focus on GDP alone.

We should, for a number of reasons, be focusing on household consumption when we consider social satisfaction with the regime’s management of the economy.

Pettis helps out with a few basic measures.

For a start, household consumption, at an astonishingly low 35% of GDP, is just over half the global average.

Related article: Argentina Tries its Hardest to Attract Foreign Oil and Gas Companies

Attempts to engineer a rebalancing of the economy from exports to consumption that lifts consumption over the next 10 years to, say, 50% – which will still leave it with the lowest consumption share of any large economy in the world – would require consumption growth to exceed GDP growth by close to 4 percentage points every year.

So an average annual GDP growth rate of 6% or 7% requires average growth in consumption of nearly 10-11% for a decade for China to rebalance meaningfully.

Why are China’s Consumption Rates So Low?

The answer to why consumption rates are so low is not hard to find. For decades, Beijing has pursued supported growth by adopting policies to transfer resources from the household sector to the state sector in the form of low wages and near zero deposit rates. The policy has been phenomenally successful from a GDP perspective, but now as Beijing aims to steer the economy to a more sustainable internal consumption model, it poses enormous challenges.

For household income to rise at 4% above GDP levels, national GDP has to fall further; probably, Pettis suggests, to a more normal 3-4% level. In tandem with that, salaries will have to rise and so will interest rates on private deposits – moves that would put enormous pressure on export industries that rely on low wages and cheap loans.

Related article: Catalysts to Watch out for when Investing in Energy Companies

But as we have pointed out in recent articles, China’s export competitiveness has as much or more to do with subsidies, cheap land, tax breaks and low power costs as it does with labor rates. Nevertheless, it would hasten the migration of Chinese manufacturing up the value chain.

Looking at it from this point of view, we can see China’s rebalancing of its economy in a 10-year timeframe, with gradually falling GDP, a rising share of household income, falling fixed asset investment (zero, Pettis suggests), rising wages and consumption and a reduction in China’s role as the workshop of the world as it gradually becomes if not the world’s largest consumer – a position long held by the US – then at least sharing that role as buyer rather than seller to the world.

By. Stuart Burns




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News