SHANGHAI — China’s government, which has overseen enviable economic growth for the past three decades by pushing huge volumes of exports, is searching for ways to get its own people to buy more things in hopes that will help sustain its economic miracle.
Whether it can pull off this slow but seismic shift is an open question, however, one that carries important implications not only for China but for the United States as well.
Multinational companies have long looked at China’s burgeoning middle class – the size of which now exceeds the entire U.S. population – as the dream consumer market. Some are doing quite well. General Motors sold more than 2.35 million vehicles in China last year, exceeding its sales in the United States by more than 130,000. When Apple introduced its iPhone 4S here last month, hundreds camped outside its stores in Shanghai and other cities and a mini–riot broke out in Beijing when the company said it was too dangerous to open its store there due to the crowds.
“We welcome China’s continued economic growth, because a prosperous China is good for the U.S. economy,” Richard Buangan, a spokesman for the U.S. Embassy in Beijing, said last month while announcing a huge increase in Chinese visa applications to the United States. “It creates American jobs, and it fuels worldwide economic growth.”
The stakes are also high for China.
“This is hugely important,” said Shaun Rein, the managing director of China Market Research Group in Shanghai. “If it gets this wrong, the economy is going to stall. It’s a paradigm shift that everyone here recognizes needs to be done. If Europe’s economy collapses and exports (from China) get hit real hard, what’s going to happen to all the unemployed workers in China? The government wants to minimize the social instability risk that could happen.”
Trying to persuade Chinese to spend more to keep the economic dynamo going is an internal issue that faces deeply engrained cultural obstacles.
For one, the Chinese people are notorious savers. Lacking the social safety net that’s taken for granted in the West, they save for their children’s education, for medical expenses, for retirement and to buy homes. It’s an ingrained part of the culture that won’t be easy to change.
“You have to spend what you need to, but I don’t like to spend too much,” said Lin Juwen, who moved to Shanghai in November from the southern metropolis of Guangzhou. When she was asked whether she’d spend more or save if given a raise from her current 3,200–yuan–a–month salary (slightly more than $500), Lin shrugged and said, “I would save it.”What can the government do to impel consumers to spend in a nation of savers?
“The government should transfer more money to households to make sure they have enough to spend,” said Zhou Hao, an economist at ANZ Bank in Shanghai. “Make it more fair and transparent. We need a system to make sure people have more long–term funding. We need to improve the public welfare system and the public housing system. The government is trying to do these things but is very far from achieving success.”
Rein, whose book “The End of Cheap China,” comes out in March, says the government needs to improve access to health care, continue to hike the minimum wage – which it did in 22 of China’s provinces last year – and lower import tariffs so that products aren’t so expensive.
“China is no longer a cheap place to do business,” he said. “You cannot rely on the export sector at all. China has to see a shift anyway to service and higher–end manufacturing.”
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