Tuesday, January 04, 2005

How do you get the Chinese to consume?

The McKinsey Quarterly (registration required) has an interesting article on the Chinese consumer. They propose a series of tax and other incentives to get young consumers to start consuming more. “Consumers over the age of 45 are probably a lost cause.” The young, the article claims, only need a trigger to start consuming out of their savings, and the government’s efforts thus far have only been temporarily effective.

To sustain rapid economic growth, the Chinese government will have to encourage consumers—especially the 250 million with household incomes of more than $1,000 a year and the 50 million with more than $3,500 a year—to spend more of their hard-earned cash. The good news is that Chinese consumers do have money to spend, having accumulated well over $1 trillion in savings. However, they are showing little sign of losing their caution, with the savings rate climbing to 44 percent of GDP last year, as opposed to 26 percent in Taiwan and 32 percent in South Korea. In big cities, such as Beijing and Shanghai, savings rates are as high as 50 percent, reflecting the consumers' propensity to save a higher proportion of their growing household income.


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