Interesting perspective---the following raises some questions about the
workability or believability of this strategy.
Private consumption in China as a percent of GDP has fallen from
approximately 47 percent in 1992 to 36 percent in 2006.
This is the lowest percent for any large economy. By comparison,
private consumption as a share of GDP tops 50 percent in
Britain, Australia, Italy, Germany, India, Japan, France, and South
Korea; it is over 70 percent in the U.S. Chinese wages as a
share of GDP have also plummeted, from approximately 53 percent of GDP
in 1992 to less than 40 percent in 2006.
This fall in Chinese private consumption is not the result of an
increase in savings by Chinese workers.
In fact, household savings rates have been declining. Savings as a
percent of personal disposable income has fallen from over
30 percent in the mid-1990s to 25 percent in 2006. China's total
domestic savings rate has indeed gone up but this is because
of growing firm and government savings. As the /Economist /explains,
"the decline in the ratio of consumption to GDP . . . is largely
explained by a sharp drop in the share of national income going to
households (in the form of wages, government transfers and investment
income),
while the shares of profits and government revenues have risen." In
fact, according to the /Economist,/ "Many countries have seen a fall in the
share of labor income in recent years, but nowhere has the drop been as
huge as in China."
Marty Hart-Landsberg
Jim Devine wrote:
Jim O'Neill writes in the _Financial Times_ that:
With this move, overall gross domestic product growth will slow below 10 per
cent, but this decline will be led by exports and investment. The Chinese
consumer is going to keep on spending. In fact, judging by the ongoing
strength of retail sales, the Chinese shopper may already be spending more
than his or her equivalent in the US.
so the fall in exports and investment will lead to falls in consumer
incomes but not in consumer spending? this means that Chinese
consumers will get deeper in debt and/or dip more deeply into savings.
is this possible, given Chinese financial institutions? how long can
Chinese consumers do this?
whatever happened to the marginal propensity to consume and the
multiplier effect?
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