November 14th, 2008
06:59 AM GMT
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BEIJING, China — The Hu Family now spends evenings at home instead of going out to dine or shop. They are petrified by all the bad news they see on TV– the financial meltdown in the West, the dwindling Chinese exports, the closures of factories, and the workers’ protests. "When I first heard about the financial crisis," says father Hu Bingyi, "I had a feeling that, wow, it's so near me. Will this affect us?"

It is already affecting many Chinese families. "We don't buy many clothes anymore," says Mrs. Hu. "We shop online, and more often we take the bus or subway or ride our bikes." To earn extra cash, she runs a sideline business selling pajamas on line. "We're still a little worried," she says. "We're not sure what the future will be like, so we still prefer to save money in the bank."

Not exactly what the Chinese government wishes. Last weekend, it announced the biggest stimulus package in its history to kick-start the domestic economy, which is now dragged down by the recession in the West and the dwindling demand for Chinese exports. Simply put, Beijing now wants Chinese people to spend and spend so as to tide China through the economic crisis.

The task will not be easy. The Chinese are typically risk-averse and are one of the world's most serious savers. China's national savings rate last year reached 56%, according to estimates by the International Monetary Fund (In comparison: Japan 29%, Europe 22% and U.S. 14%). They squirrel away so much of their disposable income because they are insecure about the future. "The Chinese have never had the kind of safety net that other people around the world have had and it just makes them very cautious and very conservative financially," says Jack Perkowski, author of Managing the Dragon, a book on his experiences as an investor-entrepreneur in China.

China's economy is still growing at a rate of about 9%, but that is down from 11.9% last year. That is relatively strong compared to the bleak economic forecasts in the West, but even a 3% drop in China's annual growth will be too steep for China's comfort because it could spike unemployment and lead to social unrest.

Households like the Hus fear they could lose their jobs or get sick. Because China's social welfare and public health care systems are in tatters, they can no longer count on the government to cover the costs of their children's education and family's medical bills. And with the one-child policy, they can no longer rely on their children for support in old age. In the meantime, they stash away their renminbi under mattresses or put it in low-yielding savings account.

Economists argue that the Chinese save too much and spend too little and it's actually bad for the economy. Beijing officials agree. For the past decade or so, China has been talking of reorienting its growth mode from one based on exports and investments to one driven by consumption - with little success. With China's exports dwindling steeply, they now hope to take up the slack by boosting domestic consumption. "We need to keep savings and consumption at a normal balance and coordinate the relationship with each other," Premier Wen Jiabao said. The $586 billion stimulus package he announced recently is full of incentives for consumer spending. "I still expect the domestic demand will compensate for the loss of jobs in export centers," opines Justin Lin, chief economist of the World Bank. "China will switch to domestic demand and maintain growth rate between 8 to 9 per cent."

But such fairly optimistic forecasts are lost among middle-class families who hear one bad news after another. "We worry that one day we will lose our jobs if our company fails," says Mrs. Hu. "If prices keep going up, we won't have money to save in the bank."



soundoff (13 Responses)
  1. Byron Johnston

    Why is nothing ever said in print or on the air that the Fed is a private entity that is not accountable to audit and receives interest on every dollar it issues which is paid by income tax form the American public?
    Sincerely,
    Byron Johnston

    November 14, 2008 at 7:16 pm |
  2. earl,florida

    Bussiness 360, I've done extensive research with comparisons of the United States financial bail-out, Vs., China in dollar /yaun cost ratios to GDP, regarding real sincerity for both countries to solve their own systemic problems. My calculations compare China's public debt at 21%,Vs.61% for the United States. The average Chinese houshold income in 2007/2008 in USD$ is approximately $2,000.00,Vs.$46,000.00 for America families, which is a 1/23 ratio, that,s the IMF's figures,not mine.The average chinese wage is 15cents/hr.,Vs.$25.00/hr. american,with an astounding ratio of 1/153 ratio. These figures can be fudged alittle+/-, but are very close in the ball park. Therefore China's real value dallar cost average towards it's bail-out is equivalent to $4.1 Trillion Dollars(USD). This is the calculation I believe the United States must pump into the economy to right itself with financial institutions leverageing their debt at 20/1 & 30/1 and sometimes 40/1(unfortunately others have followed suit),which is equivalent to our current annual GDP or $14/$16 Trillion Dollars. Please be advised this is a real problem that must be addressed,and told to the public. Yours Truly Early

    November 14, 2008 at 7:30 pm |
  3. Threemeals

    Right, take four meals a day, one with dog meat. Olympic is over, ya see.

    November 15, 2008 at 2:15 am |
  4. earl,florida

    This is a stark revelation of how dire the entire world financial markets have become intergrated, and dependent upon each other, for better or worse? Now, we have actually gone globally from ,"Structured Independent Entities",as markets were once relegated to perform efficiently, evolving from two (linear) dimensional, into a three dimensional machanism to frail unregulated junk, with no preventive maintenance. Why this has happened ? First,just try to find the "Gatekeeper's"! Yours Truly

    November 15, 2008 at 3:08 pm |
  5. Uma in Liverpool, UK

    Funny, that's just what they said in Germany.

    I can understand this, from Chinese people. The way their whole economy has changed, in one generation, must be difficult to get one's head around. Especially for older folk.

    They are caught between a fully socialist, and fully capitalist model. I am not too worried about the Chinese people, because their government will help them out. They have a net, but from the fully paternalistic state, to the present, it looks, from their point of view, as though the net has been pulled away. I can see why they would not want to jump.

    As hard as people in China work... they earn that money! If they don't feel comfortable parting with it, for anything that is not an emergency, who are we to judge?

    The internal spending will happen.... Give people time to adjust.

    'Lack of confidence' takes different forms, but it's all part of the same anxious, 'waiting for the other shoe', global zeitgeist.

    In the Euro Zone, the UK, and the USA, people would be in good shape, if they could worry that they might have less money to save. (SAVE? People save?) The way Western people live, hand-to-mouth, day-to-day, would be horrifying to the thrify Chinese people.

    One can't expect them to suddenly do an about-face, and say 'Hey, we have banks, and they aren't failing; wow, we're RICH.'

    Though, by our collapsed standards, they are rich.

    November 15, 2008 at 6:39 pm |
  6. Matthew

    This is to Gary Frazier.... I think you commented on the wrong post, this post is talking about China and their economic situation.

    November 18, 2008 at 2:55 pm |
  7. Neetu

    I agree with it. Because until you do not spend money, how can the liquidity flow be consistent in market. if there is no liquidity, the market will fluctuate in terms of sensex and hence everything. You can see the ndian market scenario

    November 19, 2008 at 11:25 am |
  8. The Chinese People

    There is nothing wrong about saving for raining days. Look what happen to the Americans when they spend or borrow more than what they can afford.

    November 19, 2008 at 12:08 pm |
  9. Stephen

    "The Chinese People" makes a good point, but on the other hand, what's the point in saving money if you don't use it? I believe that economy is based on the concept of equivalent exchange. Exchanging money for goods and services worth the value of the money. The government gives you money for working, but you don't use it to exchange that money back into the system. Basically, it's a one-sided deal.

    November 20, 2008 at 6:39 pm |
  10. Jin from Boston

    I am no economist, but I wonder if one can evaluate the whole economic condition as the ratio of supply vs. demand, domestically or globally. If the Chinese do not consume as much as they produce, they are better off anyway. On the contrary, American has been consuming too much yet produced little. At the end, the result is what we are today, or could be worse, inevitably. Globally, if one country produce more than it consumes, it must export more and it will be better off than those who have trade deficit.

    If that's the correct model, what American need to do today is to produce more and sell more and cheap, to American and to everyone in the world. I think that's something called ‘global economy’.

    Based on this model, giving away money as economic stimulus to consumers is a stupid idea. If we keep doing this, we will make a short circle trip and end up where we are today again. The government should use the money to help manufactures to improve productivity, to reduce cost, and to make better products, so that every product can be sold cheaper, worldwide.

    November 20, 2008 at 8:34 pm |
  11. Sunnie Ford

    Sending Chinese people to purchase the "quality" merchandise sent as exports would be an eye-opener for the government. So far, few takers. The Chines people know what they are doing by saving. And the consumer mentality in the USA could take a few lessons from them.

    November 23, 2008 at 3:01 pm |
  12. James Smart

    It's funny in a terribly bittersweet way that when governments give people "stimulus" money, many (most?) people will actually spend it.

    If you have a decent brain that works, you'd realize there is no more suitable time to save up that extra cash precisely when such stimulus plans are being bandied about by the politicians (and the private bankers who manage them).

    November 24, 2008 at 3:29 am |
  13. Kee Hak Lim

    Why not have the oil industry bail out the big three? They profited the most from these gas-guzzling GM cars. The amount of money the big three are asking appears trivial compared to the annual profit of these oil corporations.

    December 4, 2008 at 5:51 pm |

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