Saturday, June 18, 2011

China Transition to Consumer Economy Not Going So Well

The percent of China's GDP due to consumer spending fell yet again. Now 34% down from 46%. The only (and very unmanageable) attempt China can make for a soft landing is to transition to consumption. But they are relentlessly heading the other way.

Consumer Spending Fades in China Economy After ‘Peak Days’
“Consumption hasn’t taken off,” said Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing. “What has happened is a shift from exports to investment as a driver of growth.”

. . .

“Just at a time when the government in China and a lot of people elsewhere are hoping to see Chinese consumers step up to the plate, actually they’ve been staying away from shops,” said Mark Williams, an economist in London with Capital Economics and a former adviser on China to the U.K. Treasury. “The trend over the past couple of years has been relentlessly downward.”

Food costs jumped 12 percent in May from a year before, eroding the purchasing power of Chinese households even as policy makers embrace wage gains to bolster domestic demand. Savings are also being hurt, with the one-year deposit rate of 3.25 percent more than 2 percentage points less than the 5.5 percent annual pace of inflation. Limited exchange-rate appreciation also means imported products are more costly.

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