China’s new policies now focus on improving expectations and allow its people to feel safe. While the government promised to direct more money to social transfers, it is also concerned with creating jobs for millions of undergraduates so that the growing middle classes don’t become victims of high unemployment. Combined with the relatively low consumer spending, the increase of the unemployment rate could be devastating for the Chinese economy.
Clearly, China’s new policy to reduce growth rates resides in the fear of the government to lose the grip of the second largest economy in the world. While investment increase was the motor of the economy in the last years, China cannot continue to follow this approach.
In order to trigger consumer spending, China plans to encourage job creation in the service sector. Instead of allocating more resources to the creation of ghost cities, in which the floating population that gives them life are victim of institutional discrimination, it will strive to increased the services provided to middle and lower classes. After 30 years of urbanization, China needs to improve the quality of the economic growth it will pursue. If it fails to trigger consumer spending, China could be devastated by the overhang debt of the former investment-led expansion.