Recent stimulus has set back domestic rebalancing

The consumption share of GDP had edged up in recent years, but that progress has been reversed by the COVID-19 stimulus response, which has focused on boosting investment.  The consumption share should start to rebound again soon as the cyclical jump in the savings rate unwinds. But even prior to the latest stimulus, it was still very low by global standards. Xi Jinping’s new “dual circulation” strategy envisages domestic consumption playing a greater role in driving future growth. But so far, the strategy seems to mostly be a rebranding of existing policies rather than a substantive change in direction that would accelerate the rebalancing process. With the returns to investment diminishing, the slow progress in addressing this imbalance is a growing threat to the economy’s long-run health.