The New Yorker – Why the Chinese don’t spend

The New Yorker put together an interesting discussion about Chinese consumption.

“[In China]consumption accounts for just thirty-five per cent of G.D.P., significantly lower than for most Asian countries and only half the rate in the United States. Chinese households set aside a quarter of their disposable income…

This makes the economy more dependent than ever on exports and investment, creating an imbalance in the global economy. It also means that Chinese consumers aren’t really reaping the full fruits of their labor.

China’s policy of holding down the value of its currency means that consumer prices are higher than they would otherwise be, which obviously discourages spending.

The inadequacy of the social safety net forces the Chinese to engage in “precautionary savings,” buffering themselves against disaster.

There is a point at which you can oversave, and overinvest, and that’s where China seems to be.

Complete Article.

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