In today’s edition the China Daily discusses a new report by the Chinese Academy of Social Sciences which claims that Chinese consumer spending will hit a two-decade record low this year:
Despite a rosy picture about income growth, consumption by Chinese residents remained at a low level. It contributed about 36 percent to the country's gross domestic product (GDP) in the first three quarters, according to the report. The 2007 figure would hit a record low against around 60 percent in the period from the country's opening up initiative in 1978 to 2002. The figure had slipped by bigger margins thereafter to reach a low of 50 percent in 2006.
I haven’t seen the report, but the China Daily article suggests that the combination of high food prices, high real estate prices and monetary tightening measures are driving consumption down.If so, imports are also likely to decline, and with declining imports we will inevitably see more upward pressure on the trade surplus.As I wrote last week, the model you use to explain Chinese inflation will determine whether the tightening measures are likely to make things better or worse. I am afraid that a rising trade surplus will make things worse, not better.The next few months of inflation data will tell us.
i think the main reason for the low consumption ratio in the GDP is lack of protection for the future life. the same reason as why the deposit ratio in China is so high, ppl are worried about the high property price, high healthcare cost and high education expense of next generation. if the govt. cld not provide enuf welfare support for ur future life, u hv to do it by urself. high cpi n monetary tightening measures should not be the fundamental reason for the explanation of why.
By Jordan Jiang - 1/4/2008 10:01 AM
Jordan, high savings over the long term can certainly be explained by your reasons, but these wouldn't do as good a job explaining the sharp decline in consumption in a short period. I think high apartment prices and recent cooling measures may be the main culprit.
By Michael Pettis - 1/4/2008 3:57 PM
wot has dropped is the consumption/GDP ratio, isn't it? the absolute number could be going higher, so means poor people are struggling for food while rich ppl are putting more money into stocks/housing.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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Comments (3) for "Chinese consumer spending is...
October, 2007
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