Right now，any stimulates that goes to production side，instead of consumption side，will not work.
Chinese Economics Thread
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Right now，any stimulates that goes to production side，instead of consumption side，will not work.
Uneven wealth distribution is the root problem of economic crisis. When new wealth being generated，the big portion goes to the very small set of people，the vast majority of public only gets a small share of it.
Wealthy people and big corporations don't contribute much to consumption，they do spend much more than common folks，but what they spend on consumption only constitute a very tiny percent of their wealth. They invest most of their wealth，which will goes to production side.
So over time there is less and less consumption，more and more production. In the end the crisis will eventually explode，that's exactly what happened in the US in 1929.
Wealthy people and big corporations don't contribute much to consumption，they do spend much more than common folks，but what they spend on consumption only constitute a very tiny percent of their wealth. They invest most of their wealth，which will goes to production side.
So over time there is less and less consumption，more and more production. In the end the crisis will eventually explode，that's exactly what happened in the US in 1929.
production create jobs. Salary increase create consumption.
Not really, China's priority is to resolve the debt crisis of the property sector and the local government debt. China needs to avoid liquidity trap and credit freeze which is lot more important than reviving the consumption. Both property sector and the local government employed many people. Keeping these people employed and ensured property developers repaid their debt would increase consumption. Making sure property developers completed their housing projects and delivered the apartment on time would also help consumption as new home owner usually spend a lot of money on big ticket items.
For consumption, the government needs to refinance all mortgage to lower the cost of mortgage payment and alleviate the debt burden of most Chinese household. Most Chinese people don't have debt problem except the mortgage that is why it is so important to cut the cost of mortgage payment.
As for wealth concentration, it is not the main reason why consumption is down. Consumption is down due to the fact that average people are uncertain of the direction of the economy and feel less confident. Both weak housing prices and stock market have become a drag of consumption. If the housing prices and stock prices have increased, people would spend more money and consumption would go up.
A rich man open a factory and hire 500 workers or hire 500 domestic workers to serve himself. On surface both option create 500 jobs，but they are fundamentally different and have different effect on economy.
The factory belong to production side of the economy. It is an investment，investment needs return and profit to stay a float. When the economy is facing over production issue，all this factory will do is to exacerbate the issue，and the factory itself won't survive long when the whole industry struggles to find customers. Adding more production requires more consumption.
On the other hand. The domestic workers belong to consumption side of the economy. It is not an investment，it does not need return or profit，it is pure consumption. When the economy is facing over production issue，only pure consumption can help the economy，without adding more production.
Let's say there is an over production of refrigerators，the production side supplys 50k refrigerators but the consumption side only consumes 40k refrigerators，there is a 10k surplus capacity. If you open a new refrigerator factory，the workers from the newly create job may absorb that 10k surplus capacity. But at the same time this factory creates another 10k refrigerators，so what now？You see the problem of production side job creations？It will always create over production which the demand side will never pick up
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FriedRiceNSpice
Captain
Only if there is demand for the goods/services that are output by the production.
Lack of demand > less production > loss of jobs / salaries > less consumption > more lack of demand.
Once a downward spiral begins, it is very difficult to arrest. Thus, it is to be avoided at all costs.
You want to perpetuate a positive feedback loop where: demand > increased production > more jobs / higher salaries > greater consumption > even more demand.
There will be no over production issue if everyone has job and spend all the money.
Let's say there is an over production of refrigerators，the production side supplys 50k refrigerators but the consumption side only consumes 40k refrigerators，there is a 10k surplus capacity.
If you open a new refrigerator factory，the workers from the newly create job may absorb that 10k surplus capacity.
But at the same time this factory creates another 10k refrigerators，so who can absorb this newly added capacity now？
You see the problem of production side job creations？It will always create over production which the demand side will never pick up
Normally, housing prices decrease should make people buy more but problem is housing has been seen as an investment for China for too long. People buy it because they expect to sell in future. My friend in Shanghai now in dilemma coz he cannot sell his second apartment as no one is buying but he cannot lower price more. That's why what Xi said is important, housing is for living, not speculation. I also hope property tax introduced soon to kill off the property hoarding activity.