China After Subprime

China has been pursuing a development model that is based on supply side expansion, with high savings boosting investment at the expense of consumption. Hence, it has never developed a significant service industry or a financial system capable of channelling savings to consumption via a consumer finance framework. Domestic consumption deficiency has, in turn, pushed the bulk of the industrial capacity towards exports. Since the mid-1990s, when China’s exports became a critical mass in global trade, its economic growth has become dependent on the infinite capacity for debt-financed consumption by US households.