China’s consumer-led growth model has failed: Former Morgan Stanley Economist

New Delhi: China’s retail sales fell 0.6 per cent year‑on‑year in May 2026 after a weak April, marking the first monthly decline in three and a half years, Stephen Roach, former Chief Economist and Asia Chair, Morgan Stanley, wrote on his Substack account, arguing that the country’s prolonged effort to steer toward consumer‑led growth has failed.

Roach said that the failed growth model led to Chinese state, state‑owned enterprises and private firms capturing a disproportionate share of national income, leaving ordinary households deprived.

Further, weak consumption will force China to rely more heavily on exports and investment to meet growth targets, a shift that could expand China’s share of global manufacturing to 45 per cent by 2030.

Such an outcome would force the rest of the world, especially Europe to pursue anti-China protectionism, he argued.

The household consumption share of nominal GDP of about 39.9 per cent in 2024 is nearly identical to 39.8 per cent level seen in 2005, which the former Premier Wen Jiabao had highlighted as the major problem of the Chinese model.

“Given the protracted weakness in Chinese consumption in 2025 and early 2026, there is good reason to believe that the current ratio of household consumption to GDP has fallen below the Wen 2005 benchmark,” the post read.

A shift from export-led growth to a consumer-led impetus was warranted long back, along with policy changes to redirect excess saving to saving absorption that would lower the current account surplus and fund a larger social safety net.

A failure to actualise this outcome will lead the Chinese economy to “a protracted property crisis, a low household income share of GDP, post-Covid scarring effects, demographic shifts, and high youth unemployment.”

“Some dismiss China’s failed consumer-led rebalancing as a statistical mirage, especially since it purportedly excludes government support for education, healthcare, cultural amenities, and subsidised food,” the report added.

IANS