Apr 14 2009

Welker’s daily links 04/13/2009

Published by at 12:29 am under Daily Links

  • The 19th-century Englishman who mused that, if every Chinese lengthened his shirttail by a foot, textile mills would spin year-round, has been replaced by 21st-century westerners hoping that Chinese will step in to buy their sedans and insurance products. But can they?

    The picture is not easy to decipher. By some measures, Chinese consumers have in fact become relatively less important. In the 1980s, household consumption averaged slightly more than half China’s gross domestic product. That proportion fell in the 1990s to 46 per cent, reached 38 per cent by 2005 and is about 35 per cent today. By comparison, in 2007 US household consumption was running at what we now know was an unsustainable 72 per cent of GDP.

    …Consumption rates tend to be higher in poorer countries than China where people spend a large part of their income to survive, and richer ones where discretionary spending takes hold.

    Jonathan Garner, emerging markets strategist at Morgan Stanley, is another believer. In his 2005 The Rise of the Chinese Consumer, he predicted that by 2014 Chinese consumption would have risen from 9 per cent of US and 3 per cent of world consumption in 2004 to 37 per cent and 10.5 per cent respectively. By then, he forecast, the Chinese shopper would have displaced the US consumer “as the engine of world growth”. He says his prediction is still on track…

    There are several factors holding back the Chinese consumer. First, people have for years witnessed the destruction of the “iron rice bowl”, as once-free health and education systems have been dismantled. Now the government is committed rhetorically – and, increasingly, in practice – to rebuilding the social safety net. But it will be years before people trust the state to look after them, and run down their precautionary savings.

    Second, most Chinese are what Dragonomics, a research firm, calls “survivors”, whose purchases of basic food and clothing are meaningless for multinationals or global demand. Only about 150m are part of “consuming China”, although this

    tags: economics

Posted from Diigo. The rest of my favorite links are here.

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

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