Chinese Political and Economic Governance System and the Imbalance between Consumption and Investment

The Chinese government has been pursuing economic growth under the guidance of “growth is a hard principle”. In the context of the Chinese political and economic governance system, local governments have employed the overtaking strategy (placing primary emphasis on the development of capital and technology-intensive industries) and the real estate development strategy to push for economic growth and fiscal revenue growth. This has led to a repressed labor share and an elevated capital and government share in primary and secondary income distribution structure. Using the empirical strategy of Acemoglu et al. (2003), we confirm that the development strategies have shaped an imbalanced consumption-investment structure through primary and secondary income distribution as well as other channels. It suggests that the Chinese government will be able to accomplish China's transition from an investment-led growth model to a consumption-based growth model only if it modifies its political and economic governance system and removes the distortions in development strategies