The “growth-first strategy” and the imbalance between consumption and investment in China

Julan Du, Hongsheng Fang and Xiangrong Jin

China Economic Review, 2014, vol. 31, issue C, 441-458

Abstract: The Chinese government has been pursuing economic growth under the guidance of “growth is a hard principle”. Regional governments have employed the overtaking strategy (placing primary emphasis on the development of capital and technology-intensive industries) and the real estate development strategy to push for economic growth and fiscal revenue growth. This led to a primary and secondary income distribution structure biased toward capital and government and against labor and a government expenditure structure biased toward infrastructure and against social welfare. Using the empirical strategy of Acemoglu et al. (2003), we confirm that the overtaking strategy and the real estate development strategy have contributed to the internal imbalances of overinvestment and underconsumption. The biased primary and secondary income distribution structures as well as the biased government expenditure structure serve as important mediating channels through which the development strategies translate into an imbalanced consumption–investment structure. It suggests that the Chinese government will be able to accomplish China's transition from an investment-led growth model to a consumption–investment balanced growth model only if it modifies its development strategies.

Keywords: Overtaking strategy; Real estate development strategy; Biased income distribution structure; Consumption–investment imbalances (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:31:y:2014:i:c:p:441-458

DOI: 10.1016/j.chieco.2014.09.002

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