It has long been a given that the Chinese commitment to saving 40 percent or even more of gross family income would be a continuing element of that nation’s economic profile. While consumer spending is skyrocketing in many developing countries, Chinese citizens have tended to tie their wealth up in savings and real estate, in part because of the lack of social safety nets that are offered by many developed countries.
Now, in response to slowing national growth, the Chinese government is introducing pension systems and universal medical insurance, in hope of freeing up funds in savings and encouraging spending.
Past reforms allowing consumer lending by Web companies are taking on a life of their own. Companies such as Alibaba encourage savings by offering higher interest rates on deposits than many traditional government banks do, thus further complicating the situation.
As well, the Chinese government recently moved to establish local land markets, which would allow farmers to lease farm lands that were formerly owned by rural collectives. This would enable them to earn private income and, together with changes in banking rules, is a sign of transformation under way in a historically change-resistant nation.
Note: An important factor to note here is that ultimate outcomes are shaped by the intersection of public and private sectors—a new phenomenon in China. While long-awaited land reforms have finally arrived, they are seen as piecemeal measures, the ultimate effects of which are difficult to gauge.
Source: Alexandra Stevenson, “As Growth Slows, China Pins Hopes on Consumer Spending,” New York Times (January 19, 2015).