Can Consumption Growth in China Keep Up As Investment Slows

Rebalancing away from investment to consumption has been on China’s agenda in or- der to keep up higher growth rates. This paper uses both national- and provincial-level data to empirically answer the question how a slowdown in investment could have an impact on household consumption. Our empirical results from both the national- and provincial-level data using Bayesian vector autoregressions and panel regression meth- ods suggest that investment has had a significant impact on household consumption beyond the standard household income channel. The effects are particularly strong in the post-global-financial-crisis period. Policy measures to encourage rebalancing away from investment should take the extra effect it may have on consumption beyond the impact on household income into account.