China: The Great Economic Transformation
The Great Economic Transformation! The Chinese are suckers for adjectives to describe and give power and eminence to their attributes, actions or constructions. The Long March. The Cultural Revolution. The Great Wall, the Yellow River. A good adjective always makes it sound as if it’s true. The Chinese have taken over as the superlative attributor to everything. The tallest (soon-to-be) building in China, the Shanghai Tower, is the living proof that China plans on making itself into a byword for superlatives it’s ‘–est’ everything these days.
China is rapidly becoming a transformed nation. But, the Chinese are still saving more, while countries like the USA and the UK are spending more and saving very little. Given the western world’s current state of economic affairs, they should get their own house into order and save a little more with the rocky road that seems to be stretching out in front of us. A bit of money put away wouldn’t go amiss, would it? The US and the UK have one of the lowest household-savings rates in the world (according to economic date revealed for 2013 by the OECD), with the USA standing at 4% and the UK amounting to 5.4%. The average Brit puts away just 5.4% of his salary. Maybe he’s not earnng enough, in the consumer-bitten society in which he lives having to fork out for that new smartphone, the internet connection, the kids schooling, the transport, the hike in energy prices and the rest that goes with our lifestyles.
But, will that Chinese tendency to save money and put it away also be part of the Great Transformation that is underway? The Chinese have traditionally saved money because they were worried about the future, because they have little choice but to put the money away for the rainy day. Under Communism, you needed your brolly most days as it tended to rain quite a bit. But, despite the fact that China has done little to change its political regime except welcome with open arms the army of workers that trudge to the factories day-in and day-out and have a growth rate that exceeds expectations of even the best and the most famous, they have little possibility of doing anything else except fending for themselves at retirement age. As things stand right now, the Chinese are however, the ‘savers’ of the world, maybe in more way than one. They will change the way we consume and the way that we produce. Although, it’s debatable as to whether they will actually save the world, or rather plunge us into disarray and disillusion, dragging us kicking and screaming along behind them. But, they are literally, the country that saves the most. Household consumption is the highest in no other country in the world than in China. Yet, another superlative. They have a household-savings rate of 54% (according to figures of the IMF).
But the Chinese state (at a time when we are cutting back at home) is starting to implement a massive retirement pension scheme that will enable 325 million Chinese to benefit from the rural pension scheme. There are 185 million Chinese over the age of 60 and that will end up doubling within the next fifteen years, according to demographers. There had to be a change for the better for those reaching retirement age.
The average savings rate for the world is just 20%. That means that the average Chinese person is putting away more than half their salary every month for the rainy day. The housing boom in China and rising prices has meant that the Chinese are having to save more these days. House prices rose last year by 9.3%. The Chinese government has been trying for ages now to burst the bubble that they are living in concerning the housing market. But, they are far from slamming the breaks on anything at all and even the laws stopping single people from buying more than one house in some cities or increasing down payments (for second-time buyers) elsewhere, little has been done to stop the hike. They are superlative-ing themselves in that market too!
But, what China really needs to become the ‘-est’ in terms of consumption, which will really transform their economy, is to improve the social safety net and improve household incomes. The academic reforms that are also underway will enable people to enter the market with greater skills and command higher salaries. People will earn more. They will save less if they have a better safety net behind them just in case they fall and need to be caught. Those reforms are underway, but still not quite there. This is despite the fact that literacy levels are over 90% today, whereas they were at around 20% in the 1950s. Between 1995 and 2005 the number of doctoral-research degree holders was multiplied by 4. Its education budget stands at $100 billion and has increased by 20% on average every year for the past 15 years.
China is already the world’s largest contributor to growth in terms of consumption in the world. Consumption (real final) has increased by 8.5% every year since 1995, on average. Growth in GDP means that consumption is on the up. Poverty has been reduced for 400 million Chinese people in 20 years. Living standards have changed for many. To complete the Great Transformation, the Chinese will need to stop saving like money hoarders and start spending some of that cash. To do that, they will need to feel confident. They already have that. Confidence is not lacking. What is lacking is the curb in the housing prices and the insurance that they will be given a helping hand at retirement age and that will mean that they will become the biggest, the best and the largest consumers in the world.
The Great Economic Transformation? It’s on. The March has begun. They will become capitalist consumers just like the rest of us. They will still pull the wool over their eyes and make out that they are doing it for the common good of Communist ancestors that are long dead. But, that’s a white lie. We all know they are on the Great March to Capitalism and Consumer Society. Let’s hope they learn the lessons from our mistakes too.
Originally Posted China: The Great Economic Transformation
You might also enjoy