The Chinese consumption paradox
People are swarming around like bees in the shopping mall near the Da Yan Ta (Big Goose Pagoda) in Xi’an on a wet summer Sunday.
People clutching bags of shopping chat and stroll around as shop assistants struggle to serve everyone. Waiters and waitresses in the packed restaurants nearby work tirelessly to feed hungry diners.
This scene is typical of China’s increasingly consumeristic culture.
When I left my home country and came to China, I believed that the Chinese excelled at saving money, mainly because they are too shy or too cautious to spend it. My opinion was based largely on papers and articles I had read – mostly by Western authors, but also Chinese.
The situation I saw when I arrived, though, was quite different. Being a country of contradictions, China has both a steady consumption rate and a high savings ratio per household. Extreme poverty is balanced with extreme wealth, and in the middle, there is a dynamic society, composed of people struggling to ascend to higher income brackets. This population of almost one billion is probably one of the most relentlessly changing societies in the world right now.
The Chinese are either strong consumers or strong savers. Many readers will not share this view, but in a country like China, with its long history and complex culture, it’s silly to think there is only one truth. Instead, it’s multifaceted. The truth is this and this.
The saving army
Saving money is more an obligation than a choice in China. An interesting article describes rather well the situation the typical Chinese household finds itself in. The keyword is insecurity; they are uncertain about what the future holds. The Chinese government has factored domestic consumption into its 13th five-year plan, but it clearly fails to address this widespread sense of insecurity.
The welfare system seems to get much credit for the high saving ratio, especially the pension system. But serious inequality is also considered one of the main factors undermining domestic consumption. China’s Gini coefficient – used to calculate income disparity in a given country – is one of the world’s highest.
Herein lies the paradox: despite the high saving rate, the Chinese spend more every year, with consumption increasing by about 8%
Other factors can be seen in Chinese culture, one of the chief ones being filial piety, a concept strongly rooted in the Confucian school of thought, which has pervaded Chinese society for more than a thousand years. Filial piety is a traditional pillar of Chinese society, and since the advent of the one-child policy, the cash needed to care for aging parents has typically been withdrawn from just one bank account. This might be one factor contributing to the high saving rate in China, which benefits more than one generation. A couple may save so they can look after their aging parents as well as reduce the financial burden they will impose on their own offspring in the future.
When the Chinese spend, they spend heavily. Herein lies the paradox: despite the high saving rate, the Chinese spend more every year, with consumption increasing by about 8%. Luxury brands are especially popular, mainly because they provide consumers with a sense of identity, a way of displaying their wealth. Awareness of brands and their value plays a really important role in Chinese consumption. In an interview with the website Quartz, the academic Karl Gerth, author of As China Goes, So Goes The World: How Chinese consumers are transforming everything, argues: “I think the general awareness of brands means that a larger community of people are able to communicate and understand what’s being communicated, through the ownership and possession of those specific brands.” With increasing disposable income, Chinese consumers feel the need to advertise their status, hence the booming car market.
Food and property are also important sectors in which Chinese consumers spend heavily. According to the World Bank, food consumption is one of the biggest household expenditures.
The growth of the middle class is probably one of the main reasons consumption is steadily increasing, and it is on enlarging this segment of society that the government should focus its policies.