When the world gets closer.

We help you see farther.

Sign up to our expressly international daily newsletter.

Why are Chinese people so reluctant to spend money?
Why are Chinese people so reluctant to spend money?

-Editorial-

BEIJING - It is a well-known fact that Chinese people don't like to spend money. Since the 1998 financial crisis, China's policy makers have been trying to expand domestic demand, and in particular Chinese consumption, to let the "caged tiger" loose.

In other words, it is time that people dig into their savings.

Since 1998, the tiger is still in the cage and the government has not seen the result it was hoping for. Consumption as a share of GDP has not grown significantly, while the caged tiger seems to be growing fatter and fatter. China’s growth is investment-led -- not consumption-led.

In his last work report as Chinese Premier, Wen Jiabao said the challenge was to expand domestic spending. He said that the succeeding government should “enhance people's ability to consume, keep their consumption expectations stable, boost their desire to consume, improve the consumption environment and make economic growth more consumption-driven.”

Why are Chinese people so reluctant to spend money? Because they haven't got much money. And why haven't they got money? One of the major reasons is because the balance of China's national income is tilted to the side of government and enterprises. According to statistics, between 1990 and 2010, the per capita income of Chinese urban and rural residents only increased 10.4 times while China's total national income increased more than 20 times.

Between 1995 and 2008, the per capita income dropped from 55 % to 42% and the GDP per capita dropped by 12% while the corporates profit in GDP share went up by more than 9%.

Had the government’s share of the pie – our national income – been invested through fiscal expenditure on social security, the Chinese people would be less worried about the future and would dare to spend more. Unfortunately, the reality is that though China's financial investments in people's livelihood have gradually increased in the past few years, we have yet to find a solution for social security issues – healthcare, pensions and education. In this country, people face huge pressures in regard to education and housing costs. It is no wonder that people don't spend any money.

The fine are of wealth creation

Increasing consumption is not about creating a national pie, it is about the government finding ways to share the pie. During the 18th National Congress of the Chinese Communist Party last autumn, China's policymakers promised that the government would double both its 2010 GDP and its per capita income by 2020.

According to experts, if you take into account the inflation, for this to be achieved, per capita income growth has to exceed GDP growth. In other words, as long as the pie is not being shared, even if China's GDP continues to rise at a relatively high speed; the per capita income will not double by 2020.

Take Japan as a comparison. When Japan set the goal of doubling its per capita income between 1960 and 1970, its average per capital income grew at a rate of 11.5% annually – 1% more than its average GDP growth. Japan managed to reach to its target within seven years.

So what is the best way to share the pie? We believe that, first, wages have to increase and that the wage share of GDP has to increase too. Second, during the secondary distribution process, the population’s burden has to be reduced through tax reform.

Recently a Chinese tax official said that there is no more space to continually raise China's personal income tax threshold. A lot of complaints about the Chinese taxation system are due to the fact that it doesn’t take into consideration marital status, total household income and the number of dependents. The result is that the concession rate (deduction) doesn't fully reflect the taxpayers' burden. If the current classified income tax system can be changed to a comprehensive (integrated) income tax system, then the levy on ordinary people will be lightened.

China's economy has entered the medium-speed growth stage. Many believe in the national income being tilted to the government because this concentrated power can achieve more for China. However, from the overall economic point of view, sharing the national income pie with the people is the best way to increase China’s growth. Urbanization is regarded as the main engine of China's future economic growth. However it is impossible to sustain this engine's energy without increasing the country’s per capita income.

Increasing incomes is bound to drive consumption. Ultimately that's the main driving force of China's urbanization.

You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Insights from the widest range of perspectives, languages and countries
  • $2.90/month or $19.90/year. No hidden charges. Cancel anytime.
Already a subscriber? Log in

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!
FOCUS: Russia-Ukraine War

"Better If They Shot Me" — New Details Revealed Of Russian Torture Of Civilians

Testimonies have been gathered from victims who had been detained by the Russian military near Kyiv in the early weeks of the war. Some were held in a pit, others had their hands beaten with hammer, others with an axe and rifle butt. Some never made it out alive.

Fresh graves of servicemen who died defending Ukraine from Russian invaders at the cemetery of Bucha, Kyiv Region.

Irina Dolina

KYIV — In the early days of the invasion of Ukraine, the Russian military moved quickly to the outskirts of Kyiv and began conducting searches and arrests there. Residents of three settlements — Dymera, Kozarovichi, and Katyuzhanka — have recounted to human rights activists in recent months how they had been detained, beaten, and tortured during the occupation.

These testimonies have formed the basis of the report "Unlawful Confinement and Torture in Dymer, Kozarovychi, and Katyuzhanka in Ukraine," released together by three human rights organizations, the International Partnership for Human Rights, Truth Hounds, and Global Diligence.

Stay up-to-date with the latest on the Russia-Ukraine war, with our exclusive international coverage.

Sign up to our free daily newsletter.

Russian-language media Vazhnyye Istorii reports some of the most heinous parts of the findings (the names of the victims have been changed).

Keep reading...Show less

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!
You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Insights from the widest range of perspectives, languages and countries
  • $2.90/month or $19.90/year. No hidden charges. Cancel anytime.
Already a subscriber? Log in
THE LATEST
FOCUS
TRENDING TOPICS

Central to the tragic absurdity of this war is the question of language. Vladimir Putin has repeated that protecting ethnic Russians and the Russian-speaking populations of Ukraine was a driving motivation for his invasion.

Yet one month on, a quick look at the map shows that many of the worst-hit cities are those where Russian is the predominant language: Kharkiv, Odesa, Kherson.

Watch VideoShow less
MOST READ