China’s latest Five-Year Plan: Its effort to shift its economic model has run into a debt dilemma

China’s growth model: The country’s growth has long relied on investment, industrial production and exports. That model delivered extraordinary gains, but is now under strain. Household consumption is low as a share of GDP, reflecting high precautionary savings driven by uncertainty over pensions, healthcare, education and housing. A prolonged property downturn has weakened household balance sheets and confidence. Local governments, once buoyed by land sales, are struggling under rising debt and shrinking revenues. At the same time, China’s trade surplus is widening and reliance on overcapacity as well as exports is becoming an increasingly fragile growth engine. The policy prescription…