• 5 minutes 'No - Deal Brexit' vs 'Operation Fear' Globalist Pushback ... Impact to World Economies and Oil
  • 8 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 12 minutes Will Uncle Sam Step Up and Cut Production
  • 5 hours Maybe 8 to 10 "good" years left in oil industry * UAE model for Economic Deversification * Others spent oil billions on funding terrorism, wars, suppressing dissidents, building nukes * Too late now
  • 1 hour OPEC will consider all options. What options do they have ?
  • 10 hours Russia Accuses U.S. Of Stoking Tensions With Missile Test
  • 1 hour What to tell my students
  • 1 hour Recession Jitters Are Rising. Is There Reason To Worry?
  • 1 hour CLIMATE PANIC! ELEVENTY!!! "250,000 people die a year due to the climate crisis"
  • 14 hours With Global Warming Greenland is Prime Real Estate
  • 6 hours TRUMP'S FORMER 'CHRISTIAN LIAISON' SAYS DEEPWATER HORIZON DISASTER WAS GOD'S PUNISHMENT FOR OBAMA ISRAEL DIVISION
  • 2 hours NATGAS, LNG, Technology, benefits etc , cleaner global energy fuel
  • 52 mins Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
  • 23 hours Domino Effect: Rashida Tlaib Rejects Israel's Offer For 'Humanitarian' Visit To West Bank
  • 21 hours In The Bright Of New Administration Rules: Immigrants as Economic Contributors
  • 17 hours Get First Access To The Oilprice App!
Alt Text

How To Play A Recovery In Oil Prices?

A realistic correction in the…

Alt Text

What The Market Is Overlooking In The Occidental Deal

Occidental Petroleum has caught a…

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

Premium Content

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




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play