The International Herald Tribune writes a feature on how the Chinese government may need to convince individuals to open their pockets up to spending. Many parts of Asia have high savings rates, but 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 recent government stimulus package is helping to alleviate some of these concerns and encourage citizens to spend more to help boost their economy.
As the nation’s export driven economy slows down over the next year, the government fears unemployment and social instability could threaten the hold of the Communist Party. Although the growth rate has only slowed to an estimated 9 percent, projects place the growth at 7.7 for 2009, and some as low as 5.5 percent. The Chinese economy needs an 8 percent growth rate to sustain job requirements for the estimated 20 million people that enter the workforce each year
Now government analysts are looking to consumers, especially “the country’s hundreds of millions of high-saving peasants, to pick up much of the slack”. In a country where consumer spending makes up 35 percent of the G.D.P, down from 50 percent during the 1980s, it may be more difficult than the government assumes. To pick up this “slack” some western economists believe Chinese consumers would need to increase their spending by one third.
The Chinese government’s recent $586 billion stimulus package gives incentive for homeowners to fill their places with furniture, help provide power to rural farmers, and subsidies for individuals to buy cellphones, washing machines and flat-screen televisions. The government also cut interest rates by more than a percent.
Speaking with local countryman, Dang Fu, he explains that he saves two-thirds of his family’s $2,200 annual income. His wife Zhang Fengxia, does not use banks, saying it’s “better to keep money at home” and their biggest purchase was a tractor for $1,200 bought several years ago. The rest of their funds are set aside for retirement and potential medical costs. Compare Dang and his wife to Li Xiuqing, a secretary in a Beijing accounting firm. Li makes less than $600 a month, saves half and spends the rest on stylish clothing, meals and her cellphone. She teases her mother about her miserly ways, to which her mom responds “Old people just need one outfit,” she said, “You should save everything for your kids.”
There is speculation that urban Chinese may have different habits than the rural Chinese.