China, which has already absorbed much of the world's production thanks to its low-cost labour, may be soon become even cheaper with the tremendous investments it is placing in robotics and automation. While this will mean even lower costs for manufacturing, China will need to figure out how to rebalance its economy if less of its population has money to spend.
China’s economic growth has been driven not just by manufacturing exports, but also by fixed investment in things like housing, factories and infrastructure — in fact, in recent years investment has made up nearly half of its gross domestic product. Meanwhile, domestic consumer spending represents only about a third of the economic pie, or roughly half the level in the United States.
This is clearly unsustainable. After all, there eventually has to be a return on all those investments. Factories have to produce goods that are profitably sold. Homes have to be occupied, and rent has to be paid. Generating those returns will require Chinese households to step up and play a larger role: They will have to spend far more, not just on the goods produced in China’s factories, but increasingly in the service sector.
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