All these hopes have been dashed. A running joke on Chinese social media goes like this:[Officials] “We thought we were going to get ‘revenge’ but we underestimated compassion. We have already let go of our grudges.”
The tongue-in-cheek joke highlights one of the biggest challenges facing China’s leaders: how to encourage reluctant consumers at home to spend more.
Their argument is that China should encourage its own people to consume more to absorb its growing production capacity. Indeed, a report co-authored by Larry Hu, head of China economics at Macquarie Group, predicts that in 2022, China will account for 31% of global manufacturing value added and 27% of global real exports, but just 13% of global consumption. Hu expects this gap to continue to widen, increasing the risk of trade friction over time.
Ironically, China’s leaders, at least publicly, have long recognized the importance of expanding domestic consumption. Over the past two decades, successive leaders have touted China’s enormous market, with an estimated 400 million people and 140 million households, and a rapidly growing middle class. Yet over that same period, consumption has accounted for just over 50 percent of China’s gross domestic product, compared with over 70 percent in other major economies.
Much has been written about why Chinese consumers are reluctant to spend, with the main reasons being their propensity to save and a lack of adequate social welfare and healthcare.
02:07
Chinese retirees stage rare protest against health insurance cuts
Chinese retirees stage rare protest against health insurance cuts
This has a lot to do with the party’s ideology and operating philosophy.
Notions of consumption and welfare were not taken into account, especially in a time when most people only had enough to fill their stomachs.
This mindset reflects a deep-rooted distrust of the individual and a firm belief that the good of the whole must take precedence over the needs of the individual.
A far bigger headache is the erosion of confidence among China’s 400 million-strong middle class, whose wealth has been hit hard by the sharp declines in stock and property markets over the past few years.
Unless China’s leaders fundamentally rethink their growth model and plan drastic measures to stimulate consumption, consumers will likely choose to loosen their purse strings rather than spend money on “revenge shopping.”
Wang Xiangwei is the former editor-in-chief of the South China Morning Post and currently teaches journalism at Baptist University.
