On and off China's turnpike

Abstract

A reorientation towards emphasis on consumption has become a major issue in China, raising the question of the relationship between economic growth and the composition of output. The issue is addressed here, using insights from economic growth theories. These theories indicate that concentration on capital goods production generates the most rapid overall growth. With short-term deviations and without explicit reference to any theory, Chinese practice in the past seems to have conformed. A shift to emphasizing output of consumption goods while resulting in an overall growth slowdown, will improve consumer welfare, suggesting the benefits of shifting to this criterion of economic success. © 2014 The European Bank for Reconstruction and Development. Published by Blackwell Publishing Ltd.