Wang Jianping and his wife, Shue, are a relatively affluent Chinese couple with an annual household income of US$16,000 — more than double the national average for urban families.
They own a modest, three-bedroom apartment in the northeastern industrial city of Jilin. They paid for their son to study electrical engineering at the prestigious Tsinghua University in Beijing and even by frugal Asian standards, they are prodigious savers, with US$50,000 in a local state-run bank, but like many other Chinese families, the Wangs feel pressed. They do not own a car and they rarely go shopping or out to eat. That’s because the value of their nest egg is shrinking, through no fault of their own.
Under an economic system that favors state-run banks and companies over wage earners, the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation. At the same time, other factors in which the government plays a role — a weak social safety net, depressed wages and soaring house prices — create a hoarding impulse that compels many people to keep saving anyway, against an uncertain future.
Indeed, economists say China’s decade of remarkable economic growth, led by exports and government investment in big projects like the high-speed rail network, has to a great extent been underwritten by the household savings — not the spending — of the country’s 1.3 billion people.
This system, which some experts refer to as state capitalism, depends on the transfer of wealth from Chinese households to state-run banks, government-backed corporations and the affluent few who are well-connected enough to benefit from the arrangement. Meanwhile, striving middle-class families like the Wangs are unable to enjoy the full fruits of China’s economic miracle.
“This is the foundation of the whole system,” said Carl Walter, a former J.P. Morgan executive who is co-author of Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.
“The banks make loans to who the [Chinese] Communist Party [CCP] tells them to,” Walter said. “So they punish the household savers in favor of the state-owned companies.”
It is not just China’s problem. Economists say that for China to continue serving as one of the world’s few engines of economic growth, it will need to cultivate a consumer class that buys more of the world’s products and services, and shares more fully in the nation’s wealth.
However, rather than rising, China’s consumer spending has actually plummeted in the last decade as a portion of the overall economy, to about 35 percent of GDP, from about 45 percent. That figure is by far the lowest percentage for any big economy anywhere in the world. (Even in the sleepwalking US economy, the level is about 70 percent of GDP.)
Unless China starts giving its own people more spending power, some experts warn, the nation could gradually slip into the slow-growth malaise that now afflicts the US, Europe and Japan. Already this year, China’s economic growth rate has begun to cool off.
The CCP, in its latest five-year plan, has promised to bolster personal consumption, but doing so would risk undermining a pillar of the country’s current financial system — the household savings that support the government-run banks.
In Jilin City, where chemical manufacturing is the dominant industry, the state banks are flush with money from savings accounts. The banks use that money to make low-interest loans to corporate beneficiaries — including real-estate developers, helping to fuel a speculative property bubble that has raised house prices beyond the reach of many consumers. It is a dynamic that has played out in dozens of cities throughout China.