Monday 15 December 2008


WHY CHINA IS TOO SCARED TO SPEND

Boosting consumption is key to economic recovery. But that will take fixing a disastrous health system.

Mary Hennock

Newsweek, from the magazine issue dated Dec 22, 2008

This month marks the 30th anniversary of Deng Xiaoping's economic reforms in China. But rather than celebrating, officials are in a panic. The global economic crisis has rammed home the message that China's old export-driven development model won't work forever; last month exports were down for the first time since February 2002, and overall GDP growth has dropped from nearly 12 percent last year to a projected 8 percent in 2009. Economists and party leaders now agree: the only way to keep China humming is to boost domestic consumption. That means getting Chinese people spending. But there's a problem. China's social-security network is broken, badly, and nowhere are the problems worse than in health care. A serious illness can still wipe out a family's savings. As long as that's the case, ordinary citizens will keep sticking large chunks of their income under their mattresses. And while that lasts, consumer demand will lag.

It's not that China doesn't have the money. Just the opposite: Chinese householders currently sit on savings worth $3 trillion, thanks to a savings rate of more than 25 percent, or about 16 percent of GDP—which is higher than all OECD countries, according to the World Bank. In theory, that cash could help China out of its conundrum. "We have a large domestic market. Savings are high, economic reserves are high," Vice Commerce Minister Yi Xiaozhun told a nervous gathering of elite Chinese entrepreneurs on a recent weekend. The government has already tried to allay fears with a stimulus package worth $586 billion, which Beijing will use to counter the effects of factory closures. But it plans to do this largely through infrastructure spending. According to the cabinet-level National Development and Reform Commission (NDRC), some 45 percent of the package will go to projects such as new railways, ports and power stations. Meanwhile, only one percent of the total stimulus spending is pegged for health care, culture and education.

(...) [artículo aquí]

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