China’s announcement on Tuesday that inflation in May hit a three-year high of 5.5 per cent and industrial expansion exceeded expectations will buttress those who see an inevitable economic crash coming. But even those who think a soft landing is possible seem to agree that China’s economic growth is unbalanced, with these imbalances widely blamed for trade surpluses with the west. This view, however, is much exaggerated.

Compared with other countries, China’s consumption to gross domestic product ratio of 35 per cent is low, suggesting consumption is not being repressed. China’s investment to GDP ratio of more than 45 per cent is also exceptionally high. This leads many to propose a standard solution to “rebalancing”: China must increase consumption and dampen investment.

The problem is that this view is static, while growth is unbalanced. What matters is the direction of change. It is true that China’s private consumption to GDP ratio has declined by 15 percentage points over the past 15 years. But this mirrors many east Asian economies and also that of the US during its own industrialisation in the 20th century. Despite all the admonitions, this ratio will not begin to increase until savings decline or labour’s share of income increases.