Chart of the Day: China GDP composition

Today’s chart comes from EconomPic created from the data and analysis within a recent Michael Pettis newsletter exploring the composition of Chinese GDP, whilst looking at if lower (or negative) interest rates cause higher savings.

From 2001 to 2010, consumption has fallen from 45.3% to 33.8% whilst investment has increased from 34.6% of GDP to 46.2%. Government spending has been relatively stable, whilst trade has increased from just 4% to over 6% (hitting a high of 11% in 2007).

Is the growing investment composition and falling consumption a sustainable growth model? The world economy seems to hinge on this proposition…

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  1. Nice chart Prince… looks scary to me.

    “Is the growing investment composition and falling consumption a sustainable growth model” … IMO …no.

  2. Why then do I keep reading comments in the MSM telling me that the Chinese consumer is now picking up the slack and internal demand is driving the economy??? (example, Bloxham today quoted in the AFR).

    • The MSM line has been that China was an export-driven economy that is now transitioning to a domestic-consumption led economy.

      This hasn’t been the case for a very long time, and doubly so since the post-GFC stimulus when investment went parabolic.

      The reality is China is an investment-led economy, and is becoming increasingly dependent on investment as export income slows. Its very true that internal demand is now picking up the slack, but its mainly investment demand, not consumption.

      Bloxham knows better of course, but the MSM has to tell a good news story about China, because without China what does Australia have going for it?

    • Because there is very little critical thought in the MSM.

      if the world’s 700m most affluent consumers reduce their consumption, can 1bn poor Chinese really take up the slack?

      I havent seen that considered anywhere in the MSM. To be honest most of what i see in the MSM seems to be completely made up.

      • Of course my question was rhetorical, part frustration 🙂 Agree with your responses. Its becoming one of those situations, where if people repeat it enough times, maybe it’ll come true…

  3. “Is the growing investment composition and falling consumption a sustainable growth model?”

    It simply can’t be. In the extreme, you’ll have a massive infrastructure that produces relatively nothing.

    Like, for example, millions of empty apartmnets…

    There are so many internal inconsistencies to the China meme. It is worrying that Australia hangs its hat on the ‘endless resource demand’ theme. If China actually delivers on its five year plan (it will eventually), then the resource sector gets smashed and the hangover from Dutch disease means we have very little else to offer a consumption-led Chinese economy. And that’s without any hiccups or credit events along the way.

    IMO a new bull market in equities won’t be ushered in until we have a new narrative; one that doesn’t depend on endless Chinese growth.

  4. Hey Prince,
    Where do these % of GDP figures come from? I have seen several articles on this and the percentages have varied quiet a bit for investment for example from 46.2% you mentioned above to as high as 53%.

    Either way, too high, but just curious as to where you got your 46.2% from?

    Keep up the great work