While inflation dominated the news about last week’s National People’s Congress, a more interesting story may be the contentious internal debate about rebalancing Chinese growth from investment to consumption. It will prove a difficult task. The evolution of Chinese household consumption is one of the more striking economic stories of recent decades. In the 1980s household consumption comprised 50-52 per cent of China’s GDP – low, but within range of other high-saving Asian countries.

Over the next decade as China’s economic growth outpaced consumption, household consumption declined slowly as a share of gross domestic product, to reach a worrying 46 per cent in 2000. Such a low share left rising investment and trade surpluses as the main engines of Chinese growth. Both rose rapidly during the next decade, generating growth of over 10 per cent annually.

In the next decade, however, thanks to the urgent need to repair China’s bankrupt banks, the divergence accelerated, and by 2005 consumption dropped to an unprecedented 40 per cent of GDP. Under Premier Wen Jiabao’s leadership Beijing resolved to rebalance the economy and increase the share of household consumption. But the low consumption share wasn’t an accident. It is fundamental to the growth model and cannot be reversed without abandoning the model. Not surprisingly, Beijing was unwilling to do so, and household consumption declined further over the rest of the decade to an astonishing 35 per cent of GDP.