Will China Set Its Consumers Free?

Will China Set Its Consumers Free?
Japan’s experience in recent decades indicates that when rapid growth begins to slow in an economy with very high corporate and household savings driving fixed investment, demand can prove extremely difficult to manage. This is particularly true if the deliberate promotion of credit growth and asset price bubbles has been part of the mechanism used to sustain demand. Levels of fixed asset investment and consumption were very similar to current Chinese levels in Japan in the early 1970s (and the horrendous pollution of unregulated industrialisation in a one party state) but Japan never made the transition to a truly free market allocation of capital and maintained an implicit producer subsidy right through the bubble years. Anyone visiting Japan at the time from Europe or the US was struck by the relatively poor living standards of the average Japanese, despite world leading GDP per capita.