• Research
  • Strategic Europe
  • About
  • Experts
Carnegie Europe logoCarnegie lettermark logo
EUUkraine
  • Donate
{
  "authors": [
    "Michael Pettis"
  ],
  "type": "other",
  "centerAffiliationAll": "dc",
  "centers": [
    "Carnegie Endowment for International Peace"
  ],
  "collections": [],
  "englishNewsletterAll": "asia",
  "nonEnglishNewsletterAll": "",
  "primaryCenter": "Carnegie Endowment for International Peace",
  "programAffiliation": "AP",
  "programs": [
    "Asia"
  ],
  "projects": [],
  "regions": [
    "East Asia",
    "China"
  ],
  "topics": [
    "Economy",
    "Trade"
  ]
}

Source: Getty

Other

The Contentious Debate Over China's Economic Transition

Rebalancing China's growth from investment to consumption is necessary if China is to sustain long-term economic growth. Recent attempts to move in this direction have been insufficient; true rebalancing will require a more fundamental revision of the growth model.

Link Copied
By Michael Pettis
Published on Mar 25, 2011

Much of the news coverage about the recent meeting in Beijing of the National People’s Congress has focused on the government’s determination to bring down inflation. An even more interesting story, however, may be the difficult internal debate on Beijing’s longer-term effort to raise the level of Chinese household consumption.

This is not to say that the fight against inflation isn’t an important issue. In Premier Wen Jiabao’s opening speech on March 5, it was noteworthy that the top priority on his list of government objectives for the next five years was containing rising prices. This is the first time in many years that maintaining high economic growth was not listed as the top priority. The second priority Wen listed, however, was raising the household consumption share of China’s GDP.

At the risk of oversimplifying a complex debate—whose political sensitivities make the debate itself at times somewhat oblique—the issue is whether or not China can rebalance its economy toward a greater reliance on domestic consumption by engineering administrative measures targeted specifically at consumption. Vice Minister of Commerce Jiang Zengwei, for example, recently announced a development plan, to be released in April, in which, according to the People’s Daily, “efforts will be made to further expand domestic consumption demand, vigorously promote consumption of residents in urban and rural areas, foster new consumption growth areas, accelerate circulation modernization, develop chain operations and speed up the development of e-commerce.”

But will the execution of the plan actually increase consumption? Although much of the policy-making establishment seems to believe that these measures can work, a small but growing group insists that China cannot raise the consumption share of GDP without a major adjustment in the growth strategy that has been in place for the last decade. Previous administrative attempts to boost consumption—for example, the automobile and white-goods subsidies of the past two years—have increased consumption of specifically targeted items, they point out, without boosting overall consumption.

If that’s the case, the administrative measures are likely to fail because they do not address the underlying problem, which is the low share of Chinese household income. The measures will merely boost consumption of certain favored items at the expense of other items, and overall consumption will stagnate as a share of GDP.

In the end, resolving this debate may be the most important economic issue for China’s policy makers. Rebalancing growth from investment to consumption will be a difficult task at best, but the process will determine the success of China’s long-term economic growth.

About the Author

Michael Pettis

Nonresident Senior Fellow, Carnegie China

Michael Pettis is a nonresident senior fellow at the Carnegie Endowment for International Peace. An expert on China’s economy, Pettis is professor of finance at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets. 

    Recent Work

  • Commentary
    The Plaza Accord and Its Relevance for China

      Michael Pettis

  • Commentary
    Who Paid for China’s Last Debt Cleanup, and Who Will Pay for the Next?

      Michael Pettis

Michael Pettis
Nonresident Senior Fellow, Carnegie China
Michael Pettis
EconomyTradeEast AsiaChina

Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.

More Work from Carnegie Europe

  • Commentary
    Strategic Europe
    Taking the Pulse: Can the EU Stare Down China on Trade?

    The European Commissioner for Trade is headed to China. But after President Xi’s bridge-building visit to Washington, can a more isolated EU overcome Beijing’s stranglehold on critical raw materials? Who will blink first?

      • Rym Momtaz

      Rym Momtaz, ed.

  • Commentary
    Strategic Europe
    How Le Pen Benefits from the Stalemate in Ukraine

    The domestic impacts of how long it is taking to end the war in Ukraine have pushed the French electorate to the political extremes and compromised the country’s diplomatic capacity.

      • Rym Momtaz

      Rym Momtaz

  • Ukraine Russia Black Sea Food
    Commentary
    Strategic Europe
    A Black Sea Truce Is About Global Food Security, Too

    A summer of escalation in the Black Sea has hurt Ukraine economically and is exacerbating world food security. A truce is needed—as is a broader reframing of Europe’s Ukraine strategy.

      Thomas de Waal

  • Carney Canada EU Trump
    Commentary
    Strategic Europe
    Taking the Pulse: Is Canada Leading a Third Way?

    Canadian Prime Minister Mark Carney has twice inspired praise for standing up to U.S. President Donald Trump: at the 2026 World Economic Forum in Davos and on Canada-U.S. trade negotiations. Is Carney showing a third way better than the EU has in dealing with the Trump administration?

      • Rym Momtaz

      Rym Momtaz, ed.

  • Paper
    Assessing Information Ecosystems: How Governments Can Get Ahead of Hybrid Threats

    The hybrid warfare landscape is evolving rapidly, leaving policymakers without clear strategies. To better inform their work in addressing emerging challenges, governments must dig deeper into the underlying dynamics at play.

      Raluca Csernatoni, Alicia Wanless

Get more news and analysis from
Carnegie Europe
Carnegie Europe logo, white
Rue du Congrès, 151000 Brussels, Belgium
  • Research
  • Strategic Europe
  • About
  • Experts
  • Projects
  • Events
  • Contact
  • Careers
  • Privacy
  • For Media
  • Gender Equality Plan
Get more news and analysis from
Carnegie Europe
© 2026 Carnegie Endowment for International Peace. All rights reserved.