Crowd in China disinterested in large toy-cat installation.

China’s Unwilling Consumers

For several years, Chinese leaders have been pursuing economic “rebalancing”: The country’s longstanding growth model, based on investment and exports, is to be replaced by one based on services and domestic consumption. Unfortunately, household spending will not be driving the economy anytime soon.

LONDON – For several years, Chinese leaders have been pursuing economic “rebalancing.” The country’s longstanding growth model, based on investment and exports, is to be replaced by one based on services and domestic consumption. It’s a necessary transition for China. Unfortunately, consumption-led growth remains a distant prospect.

Yes, the contribution of domestic consumption to GDP has risen slightly over the last few years. But that mainly reflects weak investment demand, not strong consumption growth. In fact, wealth accumulation remains the primary objective of Chinese households. And, given China’s economic structure, under-developed financial market, and weak welfare state, high levels of precautionary saving will persist for the foreseeable future.

Indeed, one key factor impeding consumption is the imperative faced by China’s older workers to save for retirement. In the past, the Confucian tradition of filial piety meant that children supported their parents in their dotage. But, after more than three decades of the one-child policy, retirees cannot reasonably expect nearly as much support, and China lacks a strong pension system to pick up the slack.

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