Chinese consumer consumption is in the 33% of GDP range, while it is much higher in other countries. Many attributed this to the Chinese culture of high saving rate and lack of social welfare, pension and unemployment insurance. These are all significant factors. I would suggest som other reasons.
Chinese GDPconsists an inordinate percentage of government directed investment and government spending. Money available for discretionary consumption for low and mid income families is very limited compared with other nations. You just can't spend what you don't have, much less save it.
But why is the saving rate so high? One must look for clues in the income distribution in China.
Wealth and income in China are very concentrated in just a very small percentage of the population. When you have a huge annual income in the hundred million yuan range, there is only so many BMW'S, Mercedes, and Rolls you can buy. After you eat, drink and buy all you want, you still have a huge amount of leftovers. You have no choice but to save, or buy houses, which is another way of saving. Because the rich and super rich own great portion of wealth,and growing, they save a lot of that. I would suggest that this is a main reason for high saving rate in China.
Will increase consumer consumption help much in GDP growth in China, if export starts to decline ?
In many countries, when people increase spending, they typically buy more food, clothing, furniture, appliances, entertainment, travelling, auto, and housing. Increase consumption in China mostly come from the rich and supper rich. What do people who have everything spend on if they even want to spend more ? Luxury items. The only luxury item the Chinese rich and super rich would spend on are foreign made brand named goods. So extra consumer spending in China would mostly in form of import of luxury goods. I wonder how this would help Chinese GDP growth as expected by the PRC government.
Good point - those who have money in China, spend a large part of it abroad - either getting education for their children, or actually moving overseas for good.
ReplyDeleteThere are a few ways in which things might be improved - higher spending on health care paid for by a tax on the rich would increase domestic consumption of pharmaceuticals, a broadening of universal education means greater consumption of books and construction of schools etc.
FOARP,
ReplyDeleteThanks for the comment.
If PRC government really want to solve this problem, I have no doubt they know how to do it. And there are so many ways. It is just whether they have the will to do it, and which way they are going to do it.