This article is about how China's artificially low interest rates, government-control over the economy, and favoritism is hurting the everyday citizen. The average person is saving much more than they are consuming (consumer spending is only 35% of GDP in China, while in the USA it is 70%, mostly due to speculation that their economy will become unstable sometime in the future). Just looking at the numbers, it seems baffeling why the USA is in a recession, even with 70% of GDP being consumer spending. However, with a little understanding in economic theory, and what comprises GDP etc., one can figure out why...
Interestingly, China's central banks rely on the large amount of consumer saving to fund their own projects. This dissonance between the countries goals and the desires of the people who fund it is a good topic for debate. While it's obvious that these unnaturally low interest rates won't continue forever and something will change, it will be interesting to see/predict when that change will come.
As some of us may know, China is famous for making knock-off "imitations" of about every known name-brand on the market. And while it's not surprising that these knock-offs are available in China, the price difference between the knock-off and real thing is high enough (costing sometimes 7-12 times more) that most Chinese citizens rarely if ever buy from name-brand stores.
Not only the speculation for the future economy could influence the proportion of saving, but also the cultural and social differences have made this difference between China and other Western countries. Due to the weak health care system, huge expense for education, especially higher education, extraordinarily expensive price of housing, people in China tend to save more when they can, just in case of what gonna happening in the future. These elements, to some extent influence the high percentage of saving in China, and I don't think this hibit will be changed that much in the future years.
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ReplyDeleteThis article gives me an impression that there is a sleeping crisis cooking in China, ready to wake up any minute. Though China's state capitalism has contributed to its magnificient growth over the past few decades, the underlying fact that its people - especially the vast middle and low-income class - are not happy seems to be surfacing. China's political atmosphere drives its economy and its fall could mean disaster for its long term growth. Keeping people happy is crucial for political success and China should hurry up and mend the loopholes, lest it is too late!
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