Special Report: The Chinese consumer awakens
XIAHE: In the Tibetan monastery town of Xiahe, Gyelyanjia is visiting for a festival and taking the opportunity to do some shopping.
He has spent 20 yuan ($3) at Ding's electrical appliance shop on a heat-belt, which he can fill with boiling water and strap around his waist to ward off the bitter winter chill on the Himalayan plateau.
The 66-year-old grins: "I already have a television at home. But I would like a washing machine and a fridge. I hope to buy those next year."
Timothy Geithner harbors similar hopes. The U.S. Treasury Secretary is counting on hundreds of millions of Chinese like Gyelyanjia to spend more and save less.
That way, Chinese factories would produce more for domestic
consumption and less for export, helping to narrow the trade imbalances that are destabilizing the global economy.
Chinese consumption is, in fact, strong. It has grown by more than 9 percent a year, after adjustment for inflation, over the past decade. China overtook the United States in 2009 as the world's leading automobile market. The realestate market is on fire, swelling demand for appliances and furniture. China is No. 2 in sales of luxury goods.
There are no luxuries for sale in Xiahe, a rapidly developing town in the western province of Gansu and home to Labrang monastery, the largest outside Tibet.
INVESTMENT TRUMPS CONSUMPTION
Spending might be sturdy in China, but investment has been off the charts. As a result, consumption was just 35.6 percent of Gross Domestic Product in 2009, from 46.1 percent a decade earlier - and that was helped by a massive government stimulus to counter the global financial crisis.
The task for China's policymakers is to lift that proportion by boosting wages, speeding up urbanization and building a social safety net so people do not need to save so much for a rainy day. VESTED INTERESTS The logic behind aggressive expansion plans sounds compelling. But they will pay off only if the Communist Party is prepared to overturn China's growth model. That means taking on vested interests that thrive financially and politically from the way the economy is run, from well-connected property developers and their friends in local government, to the Party bosses of banks and big firms who wield immense power in their industries.
GETTING RICH IS GLORIOUS
China's transformation from an impoverished backwater to the world's second-largest economy has created an army of super wealthy who seized on the market reforms that Deng Xiaoping launched in the late 1970s. "To get rich is glorious," Deng Xiaoping is said to have declared, sounding a rallying cry to astute private entrepreneurs and unscrupulous strippers of state assets alike.
NO SHORTAGE PEASANTS
Apart from the unemployed and underemployed in its cities, China could grow its food much more efficiently. Fang Cai, director of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences, estimated in 2008 that China had 107 million surplus rural laborers or 22 percent of the work force in the countryside.
Lu with BoA Merrill Lynch estimates the 20-45 age group will shrivel from 39.5 percent of the population this year to 34.2 percent in 2020.
"Massive migration from
OF rural to urban areas over the past decade helped cover the manufacturing labor shrinkage problem, but it is widely believed that rural surplus labor younger than 40 is already very limited."
MONEY UNDER THE MATTRESS
China is slowly building up a pension system, mainly for urban workers, and has made compulsory education free, in principle if not always in practice.
The government is also extending health insurance and basic health care to fill a vacuum left when the "iron rice bowl" of cradle-to-grave social security for industrial workers was dismantled in the 1990s.
"It's true that people don't really need to save as much nowadays because there are certain provisions. But it's a habit," said Zhang Weiguo, 48, a former soldier who is now a driver. "You can't get the older generation to change their habits."
For all its ordinariness, Yanqing is the sort of place that is destined to flourish if the Party succeeds with another of the fundamental reforms it has proclaimed-allowing migrant workers from the countryside to settle with their families in smaller towns.
Migrants with a rural certificate of residence, or "hukou," who move to a city to work, find it hard to get access to health, education and welfare services.
"I can't afford to bring my two kids to Beijing, and no school in Beijing will admit them in any case," said Wang, the carpenter-turned-food peddler from Henan.
If migrant workers like him could put down roots without facing such discrimination, they would in theory save less and spend more on everything from subways to noodle shopslabor-intensive services that do not add to the trade surplus.
As it is, Wang said he and his wife still manage to save 20,000 yuan a year. "If I spend the money, who would pay the school fees for my kids and who would take care of us when we become ill?" But once he's saved 100,000 yuan, Wang wants to go back home and start a business. -PB News