Wednesday, 3 December 2008
China’s economy, in need of jump start, waits for citizens’ fists to loosen
But such tenacious thrift, once an admirable quality here, has become a liability as the nation’s export-driven economy slows, a prospect that has stoked the government’s fear of unemployment and social instability, and that could threaten the Communist Party’s hold on power.
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China’s economy, in need of jump start, waits for citizens’ fists to loosen
By Andrew Jacobs
3 December 2008
BEIJING: He does not know it yet, but Dang Fu has been tapped to save the Chinese economy.
A ruddy-faced millet farmer from northeast China, Dang, 56, has managed to save two-thirds of his family’s $2,200 annual income in recent years. He grows much of his own food, wears a winter coat until it is ready for the rag heap and buys niceties only when his wife’s nagging becomes intolerable.
Last year’s indulgence, a new 25-inch television, still makes him wince. “It was painful to spend so much money,” he said, strolling through the aisles of a supermarket last week with his prodigal sister-in-law (she saves just half of her salary).
But such tenacious thrift, once an admirable quality here, has become a liability as the nation’s export-driven economy slows, a prospect that has stoked the government’s fear of unemployment and social instability, and that could threaten the Communist Party’s hold on power.
In recent weeks China’s once unstoppable economy has slowed sharply. Export growth, one of the main contributors to China’s expansion over the past decade, has receded and seems likely to reduce overall growth next year, according to the World Bank. The stock market is in the doldrums and property values in many cities are off 30 to 40 percent.
China’s annualized growth rate, which stood at 12 percent during the Olympics, has already slid to 9 percent, an admirable number by American standards but ominously close to the 8 percent figure that Chinese economists say is required to provide jobs to the 20 million people who enter the work force every year. On Monday, J.P. Morgan cut its fourth-quarter growth forecast for China to 7.7 percent, and other analysts predict that number could hit 5 percent next year.
Government analysts are looking to consumers, especially the country’s hundreds of millions of high-saving peasants, to pick up much of the slack. “If we can boost people’s confidence and they spend more money, it will not only be beneficial to China but it will help stabilize the world’s economy,” Zhu Guangyao, the assistant finance minister, said last week.
But getting people to spend more, especially in the face of an economic slowdown, may be a tall order. Consumer spending makes up 35 percent of China’s GDP, and that number has been dropping since the 1980s, when it stood at 50 percent; consumer activity in the United States, by contrast, is responsible for more than two-thirds of the economy.
Western economists suggest that to offset slumping exports and a slow-down in construction, Chinese consumers would have to increase their spending by a third. “I’m not sure they’re capable of doing that as quickly as the government would like,” said Michael Pettis, a professor of finance at Peking University.
Realistic or not, Beijing seems determined to give it a try. Although it is weighted toward bridge-building and highway-paving initiatives, the $586 billion stimulus package announced by the government last month includes a range of incentives intended to get Dang and his tightfisted brethren to unstuff their proverbial mattresses.
The measures include subsidized housing to persuade homebuyers to fill their new dwellings with furniture, and rural electrification projects that will give farmers access to affordable power. Last week China’s central bank slashed interest rates by more than one percentage point. On Monday, the government introduced a subsidy in 14 provinces that would make it cheaper for people to buy cellphones, washing machines and flat-screen televisions.
Dang and his wife, Zhang Fengxia, 52, are the apotheosis of Chinese thrift. They do not use banks — “better to keep money at home,” Zhang said — and the couple’s biggest expenditure was a used tractor they bought for $1,200 a few years ago. Everything else is set aside for their retirement and for potential medical costs.
Asked if she would use a credit card if one were given to her, Zhang looked confounded. “What’s a credit card?” she asked, adding, “We have everything we need.”
Although high savings rates can be found across Asia, the Chinese propensity to save is rooted in deep-seated memories of scarcity and a tattered social safety net that forces people to save up for education, retirement and medical costs. The government has introduced a subsidized health care system in the countryside but most Chinese, rural and urban, live in fear of medical emergencies.
Doctors often raise their meager salaries by prescribing high-priced tests and medicines, and patients who cannot pay up front are regularly denied treatment. “Health care is so expensive and distorted that no matter how much you save, if you get sick you’re going to end up poor,” said Wang Tao, a Beijing-based analyst at USB Securities. “America’s health care problems can’t even compare.”
In addition to health care reforms and reliable social security benefits for retirees, Wang and other analysts say the floodgates of personal consumption may have to await a marked rise in wages. “That is something that will take years, not months,” Wang said.
For the moment, it is people like Li Xiuqing who hold the greatest promise for China’s emerging consumer economy. A secretary in a Beijing accounting firm, Li, 28, makes less than $600 a month but she spends almost every yuan on stylish clothing, restaurant meals and prepaid minutes for her fuchsia-and-gold Nokia cellphone.
Raised on a hog farm in Hunan Province, she laughs off the penurious ways of her parents and grandparents. “The most expensive thing my father ever bought was a wristwatch,” she said as she picked up a $100 pair of stilettos at one of the capital’s ubiquitous malls. “China’s days of starvation are over.”
For the moment, however, the savers outnumber the spenders. On a recent afternoon, Li Xiaoyan, a 30-year-old public relations executive, was shopping with her mother at Carrefour, the French supermarket chain.
Li teased her mother about her miserly ways, pointing out that her last clothing purchase was a decade ago. Her mother, Xing Xiuqin, 60, bragged that she managed to stash away 80 percent of her income before retiring. “Old people just need one outfit,” she said. “You should save everything for your kids.”
Li said her generation lives more for the present. But asked how much she saves, she paused to calculate. About half her income, she said. “I have to start saving for my child’s college education,” she said.
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