The most important two sentences I've read on China's economy
From David Leonhardt's terrific piece on the same:
Saying that China does not have a big-enough consumer economy is really another way of saying that not enough of its resources reach the broad mass of its people. If they had more resources, they would surely spend more.
When it comes to why the Chinese don't consume more, there are really only a few possibilities:
1. They don't have enough money to consume more because there isn't enough money to consume more.
2. They don't have enough money to consume more because the state is using the money available for them to consume more to purchase Treasury bonds, build bridges, etc.
3. They have enough money to consume more, but for both cultural and economic reasons, they choose not to consume more. Perhaps high-profile consumption is frowned upon, or perhaps the social safety net is weak and unreliable and so people have to save an enormous amount to deal with emergencies, illnesses and old age.
As Leonhardt notes, China's "per-capita G.D.P. is about $7,000, and consumption makes up only 35 percent of the economy. ... In Brazil, where per-capita G.D.P. is one and a half times that of China’s, consumption is more than two and a half times as high, or about $7,000." So the answer probably isn't that more consumption is economically impossible. That means we're left with either two or three, or, more likely, some combination of two and three. James Fallows made the case for two here.
| November 29, 2010; 10:30 AM ET
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