At the 2026 Tsinghua PBC School of Finance Chief Economist Forum, held on September 19th in Beijing, a prominent economist shared his perspective on China's economic path forward. The forum, themed around the review and outlook of the Chinese and global economies amidst global rebalancing, served as the backdrop for this analysis.

The economist argued that international and domestic imbalances are essentially mirror images of one another. He suggested that if major economies, particularly large open ones, resolved their internal imbalances, the global equilibrium would largely be restored. For China, the focus must be on its domestic imbalance, which fundamentally boils down to a demand-side issue involving both consumption, especially household spending, and investment.

While the traditional "troika" of consumption, investment, and net exports helps identify where imbalances lie, the speaker contended that in today's new context, this framework alone may fail to uncover the root cause. To dig deeper, we must ask who is consuming, who is investing, and who is exporting. The answer points to households, governments, and enterprises, and their current hesitancy in these roles stems from the state of their balance sheets.

The solution, he emphasized, lies in achieving a rebalancing of these balance sheets to boost both household consumption and effective investment. He outlined three critical areas for this rebalancing.

The first necessary rebalancing is between the central and local governments. He noted that local governments lack dynamism, which is directly linked to the sluggishness of private and social investment. The vitality of local governments is a crucial driver for broader economic engagement.

The second rebalancing concerns the public and private sectors. He revealed that the net wealth of the public sector, including central and local governments plus state-owned enterprises, accounts for roughly 30-40% of total societal wealth, a figure that leads the world except for a few resource-rich nations. In contrast, this ratio is around negative 5% in the UK and the US, and does not exceed 10% in Canada, Japan, or Germany. The wide gap is largely because China tends to accumulate wealth rather than consume it.

The third rebalancing focuses on the internal balance sheets of the corporate sector. He highlighted a stark contrast between state-owned enterprises (SOEs) and private firms. Guided by national strategy, SOEs are generally in a state of expansion. Meanwhile, private enterprises are experiencing significant balance sheet contraction, with total assets, liabilities, and net assets shrinking by over one trillion yuan. Addressing this corporate imbalance is key to enabling effective investment.

In conclusion, he stated that by achieving balance sheet rebalancing, we can stimulate local dynamism, household consumption, and private investment. If these elements all improve, China's domestic rebalancing issues will be greatly alleviated, and international imbalances will naturally follow suit.