In an earlier post, I commented on the increasing global purchasing power of Chinese consumers and their growing presence in global tourism. Yet, while Chinese tourists do tend to spend more than Americans when traveling abroad, Americans on the whole spend much more than people in China, as a percentage of GDP. The charts above are from today’s New York Times article on how the high savings rate among China’s urban middle class is the primary mechanism by which the state finances the rapid development of China’s economy and the modernization of its infrastructure. The state does this by keeping interest rates on savings extremely low, so that banks can use more of people’s savings for financing state owned enterprises. The article suggests that middle class frugality and thriftiness is a major reason for China’s rapid growth, and that despite earning low returns on their savings, Chinese people remain ‘reluctant consumers.’
The article argues, however, that the high rate of savings is an indicator of underlying structural weaknesses in China’s booming economy:
Under an economic system that favors state-run banks and companies over wage earners, the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation. At the same time, other factors in which the government plays a role — a weak social safety net, depressed wages and soaring home prices — create a hoarding impulse that compels many people to keep saving anyway, against an uncertain future.
Indeed, economists say this nation’s decade of remarkable economic growth, led by exports and government investment in big projects like China’s high-speed rail network, has to a great extent been underwritten by the household savings — not the spending — of the country’s 1.3 billion people. This system, which some experts refer to as state capitalism, depends on the transfer of wealth from Chinese households to state-run banks, government-backed corporations and the affluent few who are well enough connected to benefit from the arrangement.
Economists say that for China to continue serving as one of the world’s few engines of economic growth, it will need to cultivate a consumer class that buys more of the world’s products and services, and shares more fully in the nation’s wealth.
But rather than rising, China’s consumer spending has actually plummeted in the last decade as a portion of the overall economy, to about 35 percent of gross domestic product, from about 45 percent. That figure is by far the lowest percentage for any big economy anywhere in the world. (Even in the sleepwalking American economy, the level is about 70 percent of G.D.P.) Unless China starts giving its own people more spending power, some experts warn, the nation could gradually slip into the slow-growth malaise that now afflicts the United States, Europe and Japan. Already this year, China’s economic growth rate has begun to cool off.