When the world gets closer.

We help you see farther.

Sign up to our expressly international daily newsletter.


China's Consumption Dilemma

Saving for a rainy day
Saving for a rainy day


BEIJING – At the recent International Investment Forum, Justin Lin Yifu, the former World Bank chief economist, was asked how he personally invested his money. “All my money is in the bank, in fixed deposits,” he said, before adding with a smile, “When I sleep at night, they are still earning interest for me, so I don’t have to worry.”

For an academic who “concentrates all (his) energy on doing research,” this is Lin’s best option. But in China, he is hardly alone. According to data published by the People’s Bank of China, last month Chinese saving balances surpassed 43 trillion RMB ($7 trillion). According to a Xinhua News report, China is No. 1 globally both in terms of total and per capita savings.

More than half of the wealth of Chinese households exists in the form of savings. The Chinese obsession with banks is based on citizens’ deep-rooted faith in the government. This is also the only way China has known how to drive its economy, and Lin apparently believes that investment is the major force behind China's economic growth. It would then follow that China has to maintain its relatively high savings rate to be able to stimulate investment.

But there are many reasons to doubt that this is indeed the best possible choice. There are traditional reasons why Chinese people like to save. But when they decide to leave their money in the banks, it is often simply a result of their individual anxiety.

A few years ago, when China faced extremely high inflation, and the country experienced up to 24 months of declining interest rates, people watched the real value of their money dry up. The government has now decided to guarantee that Chinese banks won’t go bankrupt. But when the deposit insurance scheme is launched, safeguarding even banks with looming debt-risks, all those Chinese savers will have even fewer reasons to sleep soundly.

So if not the bank, where?

Over the years, government policy documents have called for efforts to increase income for Chinese citizens, but that is ultimately limited because of a lack of diversified investment options. Apart from the risks and pitfalls of financial markets, the housing purchase restrictions and the recent stock market downturn have made people unsure of what to do. And in the end, people feel little choice but to return to the banks. According to the Central Bank’s urban resident savers survey conducted for the second quarter this year, 46.2% of citizens intend to save more while only 18.1% intend to consume more.

Even the Chinese government feels helpless. People’s savings have always been considered the caged tiger. After the 1998 Asian financial crisis, “Drive out the caged tigerbecame an oft repeated slogan. Amid the 2008 crisis, promoting Chinese consumption growth was also the preferred path for rescuing the economy. Alas, this caged tiger has continued to get fatter and fatter, turning round and round in the cage without being able to demonstrate its strength.

In 1998, analysis of why Chinese wouldn’t release their savings concluded that it’s because people are worried by the “three big mountains” — education, health care and old-age pensions. Today, we can add to that the pressure of rising real estate prices.

More savings means less anxiety – in simple terms, that's how most Chinese people feel. Whether in 1998 or in 2008, expanding domestic demand should have meant more consumption. But both times, expanding domestic demand has always eventually evolved into the singular quest to invest and save as much as possible.

The Chinese government thinks it has the answers. It has chosen not to stimulate the economy and not to announce large-scale investment projects. But this is still not enough to push people toward consumption. Instead, the most important thing the Chinese government can do now is ensure that people don’t have to worry about their health care, their children’s education, their retirement and their housing. Then maybe they would start to spend and consume and stimulate rather than stay seated permanently on their savings.

You've reached your limit of free articles.

To read the full story, start your free trial today.

Get unlimited access. Cancel anytime.

Exclusive coverage from the world's top sources, in English for the first time.

Insights from the widest range of perspectives, languages and countries.


Tales From A Blushing Nation: Exploring India's 'Issues' With Love And Sex

Why is it that this nation of a billion-plus has such problems with intimacy and romance?

Photo of Indian romance statues

Indian romance statues

Sreemanti Sengupta

KOLKATA — To a foreigner, India may seem to be a country obsessed with romance. What with the booming Bollywood film industry which tirelessly churns out tales of love and glory clothed in brilliant dance and action sequences, a history etched with ideal romantics like Laila-Majnu or the fact that the Taj Mahal has immortalised the love between king Shahjahan and queen Mumtaz.

It is difficult to fathom how this country with a billion-plus population routinely gets red in the face at the slightest hint or mention of sex.

It therefore may have come as a shock to many when the ‘couple-friendly’ hospitality brand OYO announced that they are “extremely humbled to share that we observed a record 90.57% increase in Valentine’s Day bookings across India.”

What does that say about India’s romantic culture?

Keep reading...Show less

You've reached your limit of free articles.

To read the full story, start your free trial today.

Get unlimited access. Cancel anytime.

Exclusive coverage from the world's top sources, in English for the first time.

Insights from the widest range of perspectives, languages and countries.

The latest