Does China view weak consumption and deflation as acceptable development costs?
Core argument: China’s leadership sees the same data—rising external surpluses, weak consumption, slower household income growth, weak credit demand, rising unemployment and underemployment, and persistent deflation—but draws different conclusions about what these developments indicate and what Beijing should do in response.
The party is sticking to this path because the leadership believes it is working. It sees the same troubling data—including rising external surpluses, weak consumption, slower household income growth, weak credit demand, rising unemployment and underemployment, and persistent deflation—but it has reached wildly different conclusions about what these developments indicate and what Beijing should do in response. China’s worldview treats development as equivalent to capital accumulation and sees productivity as determined by the control and deployment of technology. It posits that the growth of the service sector, higher wages, and higher consumption are the consequences of that physical underlying foundation—they follow naturally in later stages of the development process once the productive industries have flourished. The resulting structural imbalance that weakens household income growth, the service sector, and public services was thus not an accident; in China’s economic development theory, this is seen as self-discipline that will pay off with more rapid long-term development.