Can China Successfully Transition to a Consumption Based Economy

‘CAN CHINA SUCCESSFULLY TRANSITION TO A CONSUMPTION BASED ECONOMY?’

SIMON LOUIE S42490852 ADVANCED MASTER OF INTERNATIONAL STUDIES

A report submitted in partial fulfilment of the requirements of the degree of Master of International Studies in the School of Political Science and International Studies at The University of Queensland DATE 28/10/11

ABSTRACT
The Chinese economy is now the world’s second largest in terms of size, and is now the principal driver of the world economy. Nonetheless, its growth has been primarily driven by government led investment and exports, and this economic model is reaching its limits, as evidenced by increasingly inefficient investment and trade tensions with China’s partners. Furthermore, it has been the aim of the Chinese government for a number of years to shift the Chinese economy to a ‘consumption’ based model. In this report I will analyse the political-economic model of China, as well as the antecedent conditions necessary for a shift to a consumption led economy. In this report I identify a difference between an ‘architectural’ and ‘horticultural’ development episteme, with the former pertinent to centrally planned economies like China and the former Soviet Union, whilst the latter are more reminiscent of liberal-democratic states. I argue that whilst Taiwan, South Korea and Japan had strong central governments in their early periods of growth, their political-economic model had to undergo political reform to transition to a consumption based economy. I proceed from the epistemological viewpoint that there are universal traits to be found in all consumption led economies. The findings of this report are that the Chinese state has substantially neglected many of the social goods that act as disincentives to saving, by inadequate expenditure on education, health-care and a decent social safety net. Additionally, China’s aging population means that the younger generations will, in

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