Why don't Chinese spend more money?

[ClarkUSA]

Source: Time

If anyone on the planet can afford to head down to the neighborhood mall and indulge in a shopping spree, you'd think it would be the Chinese. After all, they live in an economy that routinely posts growth rates of 9% or higher, resulting in surging incomes and boundless job opportunities. While much of the world experienced GDP contractions and dramatic spikes in unemployment during the Great Recession, China, supported by massive stimulus programs, barely missed a beat. In theory, as income increases, and the prospects for future earnings become brighter, families should be more willing to postpone savings and spend now.

But in China, just the opposite is happening. It's still proving difficult to convince the average Chinese to part with his or her money, even though his or her stash of cash is bigger than ever. Sure, Chinese consumers are spending more and more each year on items like cars and appliances. But simultaneously, the urban Chinese household saves twice as much of its income today as 20 years ago – from 15% in the early 1990s to over 30% in recent years. Oddly, as Chinese incomes have grown, so has their propensity to save.

The fact that Chinese are saving more is of great importance to all of us. Getting the Chinese to spend is necessary to restore the global economy to true health. If the world is to “rebalance” – or eliminate the massive surpluses and deficits that underpinned the Great Recession – consumers in surplus nations like China need to spend more. If they did, China would import greater quantities of stuff from the rest of the world and reduce its giant trade surplus, while simultaneously shifting China's sources of growth away from its unhealthy dependence on investment (in sectors like property). However, the role of consumer spending in China's economy has been heading in the wrong direction. Private consumption accounted for 46% of GDP in 2000; by 2009, that ratio had fallen to about 35%. Very simply, the sources of Chinese growth aren't rebalancing, and without that, the entire global economy can't rebalance either.

Read more: http://curiouscapitalist.blogs.time.com/2010/12/27/why-don’t-chinese-spend-more-money/?xid=rss-topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+time%2Ftopstories+%28TIME%3A+Top+Stories%29

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Wow! Imagine saving 30% of your take-home pay every year. Hats off to any nation who is that frugal and that unaffected by consumerism. Meanwhile, Americans' savings patterns have undergone a recent and welcome change: from -1% annually in 2007 to 5% now.

[dkf]

1. Very interesting.

Wow how different are they from us?

Thanks for posting.

[HopeHoops]

2. On WHAT? It isn't like they make anything in that country.

:sarcasm:

[whosinpower]

3. What a load of horse pucks

The Great Recession was not caused by the chinese consumer saving his hard earned money.

[customerserviceguy]

4. I would imagine that the Chinese culture

teaches the value of thrift, rather than the pissing away of money you don't even have yet.

A world economy founded on spending borrowed money is bound to have frequent economic disruptions of the kind we've witnessed the last few years.

[WhaTHellsgoingonhere]

9. That sounds right to me, and after a few generations of being exposed...

...to the west, they'll start to piss it away.

[david13]

5. Good for the Chinese. dc

[rucky]

6. Here, "save money" means shop for bargains.

There, it means "don't shop"

[Boojatta]

7. Doesn't it make sense for a country actively trying to contain its population growth ...

(regardless of whether the measures used are coercive or non-coercive)

... to also have a high savings rate?

Where there is a cultural practice of adult offspring supporting their parents in old age, people who have fewer children will require some source of income to offset the anticipated reduction in old-age support arising from a reduction in the number of offspring.

[Igel]

19. Yes, it does.

In the absence of trust in the same kind of safety net that even we in the US have, yes.

Another factor is that there's not easy credit. In most places, if you want to buy a car or an apt. you can't take out a loan--you need cash. If you want to buy a car or apt., you have no choice but to be frugal and save.

In the US, my parents' generation was frugal for a long time, too: They needed 10% or 20% downpayment for a house loan, and so they saved. If you only need 1% or even 0%, that's usually what you wind up putting down, meaning that you don't save.

And a third is that there's a sense in which conspicuous consumption is frowned upon. If you have two cows there's going to be somebody with one cow trying to make sure you lose a cow. It's one thing to buy a house; it's anothing thing to live high on the hog (do we still say that?). Even if you could, even if you want to, you've lived a meagre life and ramping up from meagre to ostentatious is simply bad form.

[onethatcares]

8. I wonder what the return on their savings is.

if it's anything like our .0000224% I can't imagine them saving that much. Of course they've known centuries of being screwed by royalty so they've also learned to smile and keep their mouths shut about what they have in the matress or buried in a coffee can.

Plus, jpmorgan/chase/citi/wells/wachovia/householdfinance/gmac/and a slew of other companies haven't shown them the light yet. :sarcasm:

[sendero]

10. Because ..

... they are smarter than Americans. Unlike all too many Americans, the Chinese don't have the attitude that if they can afford the PAYMENT for something that it means they can AFFORD it.

And BTW, lack of spending by the Chinese didn't cause this recession, but more spending (especially if they would buy our stuff, pretty unlikely) it would help us out of the recession.

[shraby]

11. It's just possible they get a better interest rate on their

savings than we do here in the states. No one wants to put money in a savings account that pays less than 1-2 per cent interest. Up the interest rate here, take off the charges for having under a hundred (or more) in an account, and Americans just might be willing to put some in a savings account.
When I was a kid, we returned bottles for money and put it in the bank.

[HEyHEY]

23. Banks here are better

I pay virtually no fees on my chinese account. That's just how it is.

[SoCalDem]

12. China is an ancient culture

They KNOW that "shit happens", and many alive there now have seen many changes in their own lifetimes. Being in debt & broke when a change comes, is a dangerous thing.. Here, it means you have to struggle...there, it could mean you and your family actually die..for real.

and if you can actually SAVE 30% of your income ( a relatively small income at that), then that also has to mean that a LOT of your "needs" are being met by the government & its subsidies.

and it could also mean that they don't like to buy cheap Chinese plastic shit:)

[Hannah Bell]

13. um, because the majority of chinese are still dirt poor?

16% of chinese still make less than $1.25 a day (PPP).

[leftstreet]

14. What crap. A handful of Chinese Latte Liberals have some $ to save

Big deal

The average Chinese working class person is still impoverished

Meme Fail

[On the Road]

20. The Chinese Latte Liberals are the Minority Spending Money

The impoverished workers are the ones saving half their paychecks.

Working-class man from high unemployment areas like Fujian frequently pay someone $50K for illegal passage to the US, pay a green card lawyer another $5K to get legal status, meanwhile working on renovation projects, living in the unfinished buildings, cooking rice and vegetables, and every few months dragging a bag of $20 bills to the local Western Union office to wire home. Much of the money received in Chine goes into investment into residential or small commercial real estate projects.

Older Chinese still have memories of the deprivations of the Mao period, when despite the communist ideology many families were not able to make ends meet. The lack of pensions or disability and fear of serious medical expensions drives a lot of the behavior. It's going to change eventually with the change of generations and the possible passage of universal health care, which the government is considering partly to increase financial security and thus consumer spending.

[HEyHEY]

24. Yup

I see tons of douchebags with rich parents in BMWs here. They are the handful spending. It's the people with family in the country and shitty jobs that save.

[TheKentuckian]

15. Its not like they are going to buy our goods. They'll buy cheap Chinese shit from WalMart like us.

Thing is they are China so their money will be largely reinvested in their own economy.

If we'd avoid buying their crap then we'd be in better shape.

Chinese consumers are not in the market for heavy equipment and weapons systems, so their spending won't help most of us too much. After that we got food for sale.

Our free trade, free market, no regulation, no corporate accountability, supply side economics are a loser. Accepting that will do us more good than a billion chinese with a few dollars burning a hole in their pocket.

[Motown_Johnny]

16. Remember the average salary in China is less than $8,000/ year

so don't get to excited

[northernlights]

17. maybe the fact that they've lived hand to mouth for many generations

and have been one step from starvation for as long.

How stupid an article could that possibly be. What a load of horseshit that is.

[tammywammy]

21. +1 n/t

[kgnu_fan]

18. Consumption is not their value, taking care of future generation is more important to them

Wasteful American style consumption culture is bad for the planet...

[HEyHEY]

22. They save because they remember what it's like to be poor AND have no social safety net

As well, though they may make more money, they still aren't making much. The average waiter or waitress in Beijing is making 2,000 kuai a month, about $300 bucks, in order to get an education or start their own place they have to save that money. So, they live in horrible conditions. My Fiancee's last apartment was $1,000 kuai a month. The roaches were so brazen it looked like they were meant to be there. IT was just a hallway divided into five rooms with padlocks on them, it had a community kitchen and washroom. She makes about 7-8,000 kuai a month. Why does she live like this? Just in case. Just in case she gets sick, just in case she loses her job, just in case the Chinese economy tanks.

Chinese remember being poor and some seem to expect it to happen again, that's why they save.

[LooseWilly]

29. Funny... that's why I've been saving all my life here in the States

... and it's a damned good thing I have, because a few years of steadily dwindling income in advance of a complete lack of income— I'd be back to living on the streets and shoplifting for food if I hadn't expected the bosses to figure a way to screw me, and prepped for it.

The "American Dream" has been bullshit as long as I can remember... there're just more people from the vaunted "middle class" whose connections are falling through these days... creating the illusion that this is something unprecedented.

It isn't.

It's just unprecedented for them...

[HEyHEY]

30. what's even more interesting is that China is actually trying

harder than the USA to create a middle class. Why? Cause they are scared of their people.... TERRIFIED actually. They know what happens in China when the peasants get angry.

[LooseWilly]

31. Been a long time since the US was scared of their people... last time led to welfare and Soc. Sec.

... we can hope that this time around people won't be bought off so easy... but we probably might as well develop a crack-smoking habit as hope for that... Americans are stupid...

[Sen. Walter Sobchak]

25. Tuition for international students is expensive

The world of Chinese yuppies is something I know well and when they come over for business they usually want to visit a couple universities. Of those with children in mind saving for a Western education is their number one priority - above all else. Back in April I literally had a guy over here from Shenzhen for about a month and after getting his wife a bunch of Coach crap his number one priority for his free time was to visit as many universities as possible, He seemed sort of young to be fretting over universities, he couldn't have been more than thirty... so how old was his daughter? 17 months.

[ClarkUSA]

26. Thanks for all the thoughtful comments. In somewhat related news...

Bonus Quote of the Day

"I think we've become wussies... We've become a nation of wusses. The Chinese are kicking our butt in everything. If this was in China do you think the Chinese would have called off the game? People would have been marching down to the stadium, they would have walked and they would have been doing calculus on the way down."

-- Pennsylvania Gov. Ed Rendell (D), in a radio interview, still upset that the NFL postponed the Philadelphia Eagles-Minnesota Vikings football game due to snow.

http://politicalwire.com/archives/2010/12/28/bonus_quote_of_the_day.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+PoliticalWire+%28Political+Wire%29

:rofl:

[Statistical]

27. There is no social safety net either public or private.

You save or when bad times hit you starve. Even worse if you are old.

Less than a generation ago famine was huge killer in China. That doesn't go away overnight. If you lived through a period of time (or your parents told you about a period of time) where people literally starved to death it is going to affect your consumption habits.

It likely will take 2 generations to normalize their balance between saving & consumption.

[HEyHEY]

28. I've told this here before

My Fiancee is a twin, when she was a kid in the early 80s her and her sister had to split the rations of one child cause there was no accounting for twins. If anyone grew up like that, you'd bet they'd be a saver.