Great Myth About The Low Consumption of China

On February 1, US President Donald Trump took a step towards the implementation of a campaign bow through signature An executive order to raise rates on the three largest trading partners in the United States: Canada, Mexico and China. China was the Only one of the three Unable to postpone or prevent the implementation of those rates – and it can worry the most.

After all, Trump’s order has added a rate of 10 percent on top of the existing 25 percent rates for many Chinese exports. He too Closed A Maas in the law that enabled Chinese e-commerce companies such as Shein and Temu to sell cheaply to American consumers by completely avoiding tasks. What is more, Trump has not excluded that he will act at a later time, his first promise to implement a 60 percent Rate for Chinese exports to the United States, creating extra uncertainties for Chinese manufacturers.

These grim prospects have undoubtedly been renewed phone call amidst a lot of When China is all about stimulating domestic consumption, it attracts further supervision abroad. With the commercial surplus scale China, a historic highlight European Union To stimulate growth by dumping alleged cheap exports in foreign markets. The relocation of the EU to also apply rates On Chinese EVs, a new era heralds in which the geopolitical environment, instead of the economy of production and quality of goods, can determine how much and where China can be pursued. In such an environment, sales to domestic consumers are becoming more attractive in view of the potential stability of the market.

According to this way of thinking, the enormous production sector of China does not have to shrink when running to the domestic market, given how much more the country’s consumers can still consume. Chinese private consumption only makes up for 39.2 percent from BBP, versus 67.7 percent In the United States. A rapid calculation of the back-of-the-envelope shows that this difference in percentage means that the US has more than 2.66 times in total that China has a private consumption, even with a GDP only 50 percent larger and a population quarter of the size. By bringing China’s private consumption level to that of the United States, even without further GDP growth, more than $ 5 trillion could add to the Chinese economy, almost 30 percent of the $ 17.79 trillion economy and more then the full production -output of $ 4.67 trillion in 2024.

However, a further consideration of the purchasing power of Chinese consumers quickly dispels every argument that the Chinese should spend more of their income. Official facts The Chinese government shows that the disposable income per head of the country is only $ 5,511, far away from the United States’ $ 63,668. With the help of these figures we can see that, while the private consumption of the average American is 86.87 percent of their disposable income, the equivalent figure for the average Chinese is actually higher at 89.68 percent. Contrary to what is often thought, Chinese consumers already spend much more what they earn than their American counterparts.

So what explains the consistently high household savings of China, which have achieved a record of $ 19.13 trillion At the end of 2023, or about $ 57,120, more than ten times the disposable income? The higher level of savings of the Chinese consumer in relation to income must be understood in combination with higher debts that they also provide, so that it is set aside of extra income for future repayments. Total household debt in the United States is up $ 17,943 trillion, around $ 51,200 per person, or 80 percent of the disposable income, so that the average American can scrape with a 3.80 percent Savings speed. The equivalent figures for China are $ 11,347 Trillion in total household debt, pronounced to $ 8,040 per head of the population and 146 percent of the average disposable income. In other words, it is necessary for Chinese consumers to refrain from most impulse purchases.

So to wring more from Chinese consumers, the hard work of considerably increasing the disposable income per head of the population requires. It is here that the Chinese economy shows much more potential. While disposable income in the United States represents nearly 78 percent of GDP per head of the population of the country, the figure is only 43.7 percent. More efforts must be devoted to ensuring that the average Chinese citizen directly enjoys the fruits of the economic growth of the country, due to higher wages and growth in the values ​​of their assets.

Certainly, the Chinese government has taken directly takeSuch as increasing pension expenditure and subsidies on medical insurance policies to stimulate the disposable income. Given the huge scale of the hidden Local government debt that it has to tackle, the Chinese government does not have the tax space to finance a dramatic increase in the disposable income. Instead, Chinese private companies that traditionally expected little to sell to foreign customers, including those in domestic tourism, food and drink, and even IT companies that sell direct-to-consumer services, do more to wages And to stimulate vacancies.

Certainly, the efforts of both the government and the private companies will be confronted. With the youth unemployment rate stubbornly high on more than 17 percent and consumer confidence remain float Almost a record low, there is a lot of downward pressure on both wage levels and sales income for even the companies that are most isolated from the Tit-for-Tat rates in the current trade war. But by making it clear that the shortage of Chinese private consumption has not been rooted in the overtiguous savings of the Chinese consumer, but the insufficient compensation they receive in the first place, the pressure of the public can be more focused on policy -making and business behavior that Encourages financial well -being of the employees.