We often read in the press rather alarming stories about the rise of an ugly and belligerent nationalism in China, but while these stories are certainly very real, after the November 13 bombings in Paris I was struck by a very different kind of Chinese behavior. A lot of young people that I know in Beijing – high school and college students, young professionals, musicians, etc. – were horrified by the violence that occurred in Paris and very eager to express a real sympathy for Parisians, which they did in the ways that young people express themselves today, via smart phones, social media, and all the other things that wouldn’t have occurred to me. I saw an awful lot of these expressions of sympathy and while these are no more than small gestures, of course, they are personal, not official. As someone who loves Paris I was very happy to see lines of solidarity immediately stretch out to include so many young Beijingers, most of whom have never even been to France.

To turn to more mundane topics, last week I received an email from Jorge Guajardo, the former Mexican ambassador to China, with whom I regularly exchange emails in which we discuss the political and economic challenges associated with China’s economic adjustment, along with any insights that his knowledge of Mexican history might provide. While the differences between China and Mexico are obvious, too few of the analysts trying to understand the political economy of China’s adjustment seem to know much about Mexico, or indeed about other developing countries that have undergone similar experiences and whose histories can provide a useful framework with which to understand China.

It is far more common for example to look at the US and Japan for external references and comparisons, even though these two countries have social and political institutions that are far less like those of China than many, if not most, other developing countries. The differences in wealth alone are quantitatively so great that they also become qualitative hurdles. The US, after all, has 7.2 times the per capita GDP of China, according to the IMF, and American households earn around 11 times the per capita income of Chinese households. Japan has 4.8 times the per capita GDP of China and Japanese households nearly 6 times the per capita income. Mexico, on the other hand, has only 1.4 times China’s per capital GDP and less than 2 times the per capita household income.

By the way one of the ways of expressing Chinese rebalancing is to think of it as a closing of the gap between the difference in per capita GDP and per capita household income. In his email Guajardo asked me for details on Chinese consumption levels in order to understand China’s progress on rebalancing demand within its economy, and in my response I referred to this release in October from China’s National Bureau of Statistics:

Based on the integrated household survey, in the first three quarters of 2015, the national per capita disposable income was 16,367 yuan, a nominal growth of 9.2 percent year-on-year or a real increase of 7.7 percent after deducting price factors, which was 0.1 percentage point higher than that in the first half of the year.

I am not sure how comparable the two numbers are, but with real GDP growing at 6.9% and nominal GDP at 6.2%, it seems that disposable household income is growing 0.8 percentage points faster in real terms and 3.0 percentage points faster nominally (I am assuming population growth is more or less flat as the household income numbers are per capita). I don’t know how to reconcile these two numbers, but the gap between the growth in household income and growth in GDP, which is at the heart of rebalancing, is clearly reversing. After decades in which GDP growth sharply outpaced the growth in household income – and, with it, consumption growth – we must see this reversal, so that the growth in household income exceeds GDP growth by enough that the consumption share of GDP can return to healthy levels.

But the gap is not narrowing quickly enough to rebalance the economy by the end of President Xi’s term in 2023. There are different ways to measure the household income share of GDP and I have no strong arguments in favor of one way or another, but, according to the Economist Intelligence Unit, “Chinese Disposable Personal Income as a Percent of GDP” bottomed out in 2011 at 41.5% and is now rising, reaching 44.0% in 2014. According to the World Bank the “Share of household disposable income and labor (wages) in GDP” bottomed out in 2011 at 60% but in their June 2015 China Economic Update their data only runs to 2012. I am not sure why these numbers are so different.

If we assume that disposable household income is currently half of GDP, eight years of real GDP growth of 6.9% and real disposable household income growth of 7.7% will only raise the household income share of GDP to 53.1% in 2023, a little more than 3 percentage points higher and still below its 21st Century average and leaving China as dependent as ever on investment and the current account surplus. At this rate it would take 25 years for disposable household income to raise by 10 percentage points of GDP, which I would argue is the absolute minimum consistent with real rebalancing.

Even if the gap were to narrow twice as quickly as it is currently narrowing (i.e. if the growth in household income exceed the growth in GDP by 1.6 percentage points) it could easily take 10-15 years for China to adjust sufficiently that its economy can return to sustainable growth. Unless there are far more radical policies implemented to speed up the growth in the household income and consumption shares of GDP, in other words, (and this basically means stepping up the transfer of wealth from the state sector to the household sector), at the current rate we are not going to see sufficient rebalancing for at least 10-15 years.

But does China have 10-15 years? The maximum adjustment period, as I’ve long argued, is largely a function of the country’s debt dynamics. Beijing can keep growth high enough that unemployment is held to acceptable levels only as long as debt can grow fast enough both to

In order to answer the question of how much time China has I thought it would be useful to work out a simple model for the growth in debt to see how plausible it is to assume that China has another 10-15 years in which to manage the adjustment without implementing far more dramatic transfers of resources, either to pay down debt or to raise household wealth. The model shows pretty clearly that China does not have that much time unless we make extremely implausible assumptions about the country’s debt capacity and, just as importantly, about market perceptions about this debt capacity.