China is looking to cut inequality to boost the economy

Views of Shanghai, as China's central bank goes alone, promote an influx of capital

Photographer: Qilai Shen / Bloomberg

The Chinese Communist Party’s new promise to correct the “demand side” of the economy has given rise to expectations that the leadership will implement more egalitarian policies to stimulate consumer spending.

The party’s top leaders used the term “demand-side reform” for the first time this month, deviating from its previous focus on “supply-side” changes involving industrial upgrading and capacity reduction in inflated sectors.

Although China is the only major economy to grow this year due to its effective control of the pandemic, the new slogan signals that the ruling party is concerned about the uneven recovery, with household spending lagging behind in real estate investment and infrastructure. Beijing has not detailed what the term means, but officials have dropped tips, and economists have been quick to make suggestions.

The share of workers is stagnating

Attempts to balance the economy have not borne fruit yet

Source: Sources: University of Groningen, University of California, Davis, via Federal Reserve Bank of St Louis’ FRED database


Redistribution of income

The term “demand side” is used to refer to investment, consumption expenditure and any trade surplus. Beijing turned to investment to replace exports as a driver of economic growth during the financial crisis of 2008, when overseas orders slowed down, and has since struggled to “rebalance” demand against consumer spending.

Economists blame the imbalance on several factors, including wage inequality, which means that income accrues to richer households who are less likely to spend, and the relatively high share of gross domestic product paid as profits to capitalists rather than as wages to workers.

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