This article is written by freelance writer Wu Hongsen (吴洪森), originally published in Chinese magazine: Window of the South (南风窗), translated by Anton Lee Wishik II for Mei-Zhong Guanxi blog:
What is the significance of a low consumption rate?
At the very least, it denotes two large issues: First, after many products are produced they are just placed in a warehouse and are not consumed (for storing things in a warehouse, a storage fee is paid which increases GDP; thus, GDP is easily flooded and merely measuring the economy by increases in GDP is unreliable). What does it mean that production capacity has not been fully consumed? The possibility of an economic crisis!
Second, an increase in income accompanied by a decrease in consumption signifies that the methods of economic increase and distribution have not only not increased people’s feeling of security, on the contrary, they have increased feelings of uncertainty regarding the future. This is clearly due to a severe asymmetry that has been created between increases in income and expected increases in expenses.
To dodge an economic crisis, only a substantial increase in the consumption rate will do. To increase the consumption rate, only strengthening the citizens’ feeling of security will do. To strengthen the citizens’ feeling of security, only eliminating those factors which cause them panic will do. Everyone is clear on which factors cause Chinese citizens to panic: inability to see a doctor, inability to pay tuition, inability to buy a house, and unemployment without safeguards.
The prevalent viewpoint sees solving the masses’ four large difficulties as a material welfare issue. However, by viewing this in the context of the relationship between GDP and the consumption rate, we should be able to see that this is not a material welfare issue, but is the great issue of whether the entire economy can continue to operate and its relationship to each person’s interests. If consumption can’t follow in step with increases in production capacity, more and more products will be overstocked, and as soon as an economic crisis breaks out, every person is a victim!
