As explained in my previous post, China is in trouble.  A recent CNN article summed it up like this:  the economy “is stalling… a real estate crisis is deepening and exports are in a slump. Unemployment among youth has gotten so bad the government has stopped publishing the data.”

One of the factors that is holding the economy back is that Chinese households save too much: about 46% of their disposable income.  This is more than ten times higher than the US household saving rate of roughly 4%.   According to Forbes, “the high Chinese household savings rate has no peer among major economies.”

Wait a minute.  The Chinese save too much?  My parents, who grew up during the Great Depression (1929-1941), would have thought that impossible.  But according to John Maynard Keynes’ “paradox of thrift,” when people don’t spend enough, demand decreases, production decreases, and the entire economy slows down.

As a result, according to many economists, “Unleashing domestic consumption is the surest path for China to achieve its goal of becoming the world’s largest economy, anchored by the world’s largest middle class, by 2035.”

Why are Chinese saving habits so different from our own?  As I have often argued in this blog, the answer begins with cultural differences.  According to the Tao Te Ching, written about 400 BC, “the three greatest treasures one can have are love, frugality, and generosity.”  Confucius also wrote about the benefits of being cheap, when he said:  “He who does not economize must agonize.”  If you think writings from 2,400 years ago are irrelevant to current behavior, consider the fact that Zhou Xiaochuan, former Governor of the People’s Bank of China (2002-2018), has said that “his country’s high saving rate as in large part the product of Confucianism, which values thrift, self-discipline, moderation, and an aversion to extravagance.”

In modern times, just as my parents learned the importance of saving during the Depression, many Chinese parents and grandparents learned to save during the famines and economic uncertainty of life under Mao, and in the rapid changes rooted in the marketing reforms initiated by Communist party leader (1978-1989) Deng Xiaoping.

You might think Chinese citizens should be less worried about money today, since Deng’s reforms have lifted 850 million people out of poverty.  But, according to an August New York Times article, “Chinese consumers [are still] afraid to spend, due in part to the government’s years of inattention to building an adequate safety net for seniors, the jobless and others in financial stress.” 

The article goes on to argue that safety net problems were made worse by China’s strict and expensive “zero covid” policies, given the high cost of testing, surveillance and quarantines.  “Many local governments have been cutting residents’ health benefits this year after anti-Covid measures depleted municipal health insurance funds in 2022. Health coverage reductions have triggered street protests in cities like Wuhan, Guangzhou and Dalian.”

Economic challenges are also common for the elderly. “Faced with a rapidly aging society and a national pension fund that is expected to run out of money by 2035, the central government has also cut back on increases in payments to seniors.”

Many economists had predicted that when the covid lockdown ended, China would experience the same kind of revenge spending seen in the US, where people bought much more than usual after the restrictions of the pandemic were lifted.  But, like many other economic predictions, this turned out to be wrong.

With the wisdom of hindsight, two think tank economists wrote in July that “Chinese households seem even more worried about their jobs and income now than during much of the pandemic. When asked whether they would consume, invest, or save more in the coming weeks, 58 percent of Chinese depositors said they would save more, according to the People’s Bank of China’s depositor survey for the second quarter of 2023.”

Economic uncertainty also affects the marriage prospects of young adults.

Among many Chinese, “to be considered as a suitable candidate for marriage, you should be financially stable.  And the more money you have, the better the prospect you become.”  For example, one woman raised in China recently reported that “the first time she introduced her fiancé to her parents… almost immediately, they asked three questions: ‘What does he do for a living, how much does he make, and how much property does he own?’”

Economic barriers to mating have also been increased by the fact that there are too many males and not enough females.  Specifically, there are between 107 and 116 males per 100 females (depending on their age between 15 and 35).  According to Forbes “A variety of factors conspire to produce the imbalance. For one, Chinese parents often prefer sons. The availability of ultrasound makes it easy for parents to detect the gender of a fetus and abort the child that’s not the ‘right’ sex for them.”

Yikes.  That’s still going on in the 21^st century?

One result of all this is that “Nearly 35 million young men in China will hardly ever find a real date or even have sex in their lives.”

Double yikes.  Still another reason to be glad I don’t live in China.

Is the problem of too much saving in China likely to be solved soon?  Nope.

For decades, the World Bank, the International Monetary Fund and prominent economists have been urging the Chinese government “to do more to support its consumer economy, and to stop relying on growth built on speculative construction of apartment towers and heavy public investment in infrastructure like roads and high-speed rail lines.”

Specifically, economists recommend changes like this:

• “Make the income tax more progressive and family friendly;
• Spend more on health care, pensions and education;
• Spend more on assistance to the poor, which would reduce income inequality.”

But Xi Jinping has different priorities.  According to Foreign Affairs, Xi “appears much less interested in organizing the economy for growth than his predecessors did. Instead, he is optimizing it for security and resilience.”

And, if that’s not enough, Xi “has a well-known aversion to any social spending, which… he believes might erode the work ethic of the Chinese people… [In one famous speech], Xi said ‘we must not aim too high or go overboard with social security, and steer clear of the idleness-breeding trap of welfarism.’” 

Opposition to social spending feels like a very odd position for a Communist leader to take.  Then again, in today’s China, Communism is whatever Xi Jinping says it is.