Old saving habits die hard for the thrifty Chinese
Keith Richburg, Washington Post, July 8, 2012
For three decades, China has enjoyed astronomical growth through massive government investment and by becoming the world’s exporting powerhouse. But those days are coming to an end, and the government is looking to Chinese consumers to drive future expansion.
However, a tradition of thrift and a historic mistrust of officialdom is thwarting efforts to persuade Chinese to spend more. And with China’s economy in the midst of a major slowdown, the government has not yet moved away from restrictive policies that discourage spending.
Last week, China made its latest move to combat the slowdown, cutting key interest rates—the second rate cut in a month.
The Chinese remain among the world’s stingiest consumers. Household consumption accounted for a paltry 35 per cent of the overall economy in 2010, compared with 71 per cent for Americans and 57 per cent for Europeans. They also save far more, with an average household savings rate of 38 per cent in 2010, compared with just 3.9 per cent for Americans and 2.8 per cent for Japanese.
And while younger Chinese have begun to buy more, save less and take advantage of credit more often than their parents, old habits appear to be eroding slowly and may change only with a new generation.
“I don’t see the need to consume that much,” said Patrick Zhou, a 36-year-old Shanghai lawyer with a two-year-old son. Mr Zhou said he and his wife each save about half of their income, which still leaves them with enough to eat out regularly and take a yearly holiday.
The high rate of savings contrasts with increasingly visible consumerism in cities such as Beijing and Shanghai, which are filled with Ferraris, shopping malls and luxury boutiques.
Only Chinese older than 50 cling to more conservative spending habits than those in their 30s and 40s, said Shaun Rein, managing director of the China Market Research Group and author of a new book titled The End of Cheap China. He said the exception to the savings-first rule appeared to be the twentysomething generation, with “an effective savings rate of zero”. These Chinese were born after China’s opening to the world in 1978, grew up with relative affluence and they want the latest iPad and iPhone.
The reasons why Chinese save more and spend less are complex, stemming in part from tradition, while also a response to government policies that discourage consumption. People older than 50, who save more than 60 per cent of their income, remember the years of economic hardship and political chaos.
Some younger Chinese have carried on that tradition of thrift. Tony Ren, a 30-year-old Shanghai accountant, saves about half his $2600 monthly salary, but says he doesn’t feel like he’s wanting for anything. “Maybe I’m too busy to have a lot of time spending money,” he said.
But there are other very practical reasons why Chinese save. Buying a home typically requires a down payment of up to 30 per cent, an astronomical sum for many. Also, many have their first, and often only, child in their 30s, which is when they begin saving for future education expenses.
Michael Pettis, a finance professor at Peking University, said the real problem was not that Chinese consumers spent so little, but that they had so little to spend. Household income accounts for just 50 per cent of China’s GDP, he said, compared to the US, where it accounts for 80 per cent.
That means, essentially, that the government’s share of the economy is far too large—or, as some Chinese say, the country is rich, but the people are poor.