Andy Xie: Chinese Companies and Government Need to Improve Efficiency

Renowned Chinese economist Andy Xie, opined that the Chinese companies and government need to improve efficiency, otherwise slow down is inevitable.

China’s household consumption is about one-third of GDP. It is low because labor income accounts for just over 40 percent of GDP. Gray income is probably 10 percent of GDP. Most money in China goes to the government and SOEs. Companies go to them for demand and profit. As their spending is not efficiency-driven, their suppliers are not either. This is why, even though China is the second-largest economy in the world, it doesn’t have many competitive companies to speak of.

Efficient companies rise when they meet sustainable and efficient demand. When money is spent by the people for their needs, the demand created is sustainable. Companies that compete for it successfully will last. China’s household consumption should be above 50 percent of GDP, similar to that in other developing countries. It requires labor income at 65 percent of GDP, also a normal level. These goals can only be met if the government and SOE’s share in the economy decreases. In the short term, the government could cut income and consumption taxes by 1 trillion yuan. Such a down payment could increase demand for industries with overcapacity and boost market confidence in China’s future.

Detailed analaysis from Andy Xie at CaiXin here: http://english.caixin.com/2012-12-21/100475512.html

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