Global markets seem increasingly concerned that a change in Chinese economic policy will soon force US interest rates higher. These concerns are mistaken.
During last month’s National People’s Congress, Beijing made raising the extraordinarily low consumption share of gross domestic product a top priority. If the plan succeeds, besides limiting China’s dangerous overreliance on investment to generate growth, it should also reduce the country’s massive trade surplus.
China’s savings rates are the highest recorded. If rising consumption forces the relative savings rate down just 4 or 5 percentage points – with no change in investment levels – China’s trade surplus would be wiped out.
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