China wants to shift economic gears, but can it?

Chinese goal of pivoting to consumer economy may prove illusory

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Mall in Beijing

Mall in Beijing (AP photo)

TAIPEI (Taiwan News) — The world's second-largest economy is itching to get back to business, but with everyone else in the midst of the coronavirus pandemic, that could be easier said than done for China.

Last week, Beijing made a rare choice not to set a growth target for 2020 due to uncertainties surrounding the coronavirus pandemic, according to CNBC. While addressing last week's National People's Congress (NPC), Premier Li Keqiang said the government would instead "give priority to stabilizing employment and ensuring living standards."

Speaking to several top economic advisers in Beijing over the weekend, Xi Jinping said China would pursue a new development plan in which "domestic circulation plays the dominant role," according to the SCMP."

"For the future, we must treat domestic demand as the starting point and foothold as we accelerate the building of a complete domestic consumption system, and greatly promote innovation in science, technology and other areas," Xi said in comments reported by the official state Xinhua News Agency.

This comes amid reports that Chinese exporters are struggling with canceled shipments, returned goods, and a lack of new overseas business. Exporters are now looking to China's domestic consumers to pick up the slack.

But is that even possible? According to Michael Pettis, a finance professor at Peking University, in an editorial for the Financial Times, China still has an extremely unbalanced economy where ordinary households have little income compared to local governments, corporations, and the rich in terms of GDP. "As a result, sustainable household consumption, typically the largest component of overall demand in a large economy, also drives a very low share of total Chinese demand," Pettis said.

China exported US$557.9 billion worth of goods to the United States in 2018 alone, according to the Office of the United States Trade Representative. In other words, Americans buy a lot of stuff from China.

To think that Chinese consumers will somehow replace US spending in the near-term is overly optimistic at best. Realistically, it sounds more like a pipe dream.