OPINION> You Nuo
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OPINION> You Nuo
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Waking up domestic consumption
By You Nuo (China Daily)
Updated: 2009-04-13 07:42
Economists have a lack of data from the 1990s onwards to help them decide how China's domestic consumption can catch up with its overall economic progress. Many of them have found Chinese consumers' willingness to spend very languid, almost abnormally so. That is usually attributed to two factors - one is real and the other is more of conventional wisdom. Under the first factor, consumers tend to spend less when they receive less protection from social security. It is a fact that a fair number of Chinese citizens have yet to be provided with unemployment insurance, comprehensive medical care and totally free education. So they must save as much as they can to meet present and future uncertainties. The second factor is the belief that consumers in East Asia simply do not want to spend as much as their Western counterparts, because in their culture, frugality is a virtue. In the last quarter of 2008, no one had any idea how Beijing was able to jump-start the other engine that had long been lying idle - domestic consumption. China's domestic consumption has been below 50 percent in proportion to its GDP, which is a very low level compared with other economies in the world. According to some studies, its entire economy depends on exports for up to 70 percent of its growth, troubled by a disease that economists call export-dependence. So how on earth could China boost its domestic consumption? There was even serious doubt as to whether its national market was capable at all of responding to Beijing's 4 trillion yuan ($585.7 billion) stimulus package.
However, developments in the last few weeks seem to suggest that at least the country's urban consumer market is not a hopeless case. Auto sales have, for three months in a row, exceeded those in the United States to become the temporary leader in the world, partly as a result of the government's tax incentive to cars with engines smaller than 1.6-liters. More than 1 million vehicles were sold in March alone, with dealers expecting the whole year's sales to exceed 10 million. At the same time, if one is to believe Chinese media reports, sales of new housing units have also seen a rise in major cities like Shanghai, Beijing and Shenzhen, after the central government relaxed its policies on real estate investment. Whether or not the alleged sales of 2,000 units are true, the number of visitors attracted to the Beijing house fare last week is enough indication of a ready demand. Cars and houses are the two most important assets for middle-class consumers. One can hardly go without them if he or she is to establish a family and to keep working in the sprawling urban areas along the Chinese coast. There is no telling the actual size of the population in the coastal cities, which is joined by a frequently changing number of migrant businesspeople and workers. But it would not be too optimistic to say there may be close to 300 million people, equivalent to that in the US, who can afford new cars and new houses. More importantly, those people are by no means the type who only save and never spend. They do spend on major items, so long as there are enough policy and price incentives being offered, especially when tax breaks are directly linked to purchases, as is the case in this country nowadays. Indeed, never have so many incentives been available for Chinese consumers before. Cars have never been so cheap, and with so many choices. In the real estate market, even today, developers have yet to be made to pay a heavy penalty for their shoddy work. So there is still ample room for China to reward its consumers - with higher standards for products and services as well as tax and price incentives. A hidden reason for China's long anemic consumer market is perhaps how there has never been much emphasis on consumer rights. E-mail: younuo@chinadaily.com.cn (China Daily 04/13/2009 page4) |
