Chinese and Indian consumers appear to be going on a spending binge bucking the global trend, but they cannot make up for the billions not being spent by shell-shocked American shoppers, experts said.
Indian Trade Minister Kamal Nath projected that the domestic consumption in his country is expected to grow by “around 7 percent” this year.
Growth through “domestic consumption has to be the only way,” Nath said on the sidelines of the World Economic Forum in Davos, explaining that exporters are being held back by falling demand elsewhere.
Chinese Premier Wen Jiabao (溫家寶) said among early signs of recovery by the Chinese economy is a 20 percent rise in domestic consumption at the start of the Lunar New Year, compared with the same period last year.
“The signs are small ones, but they give me hope,” he said.
Bank of China (中國銀行) vice president Zhu Min (朱民) said Chinese domestic consumption would grow at about 20 percent this year, the same as last year.
On the other hand, he said that US consumer spending is set to plunge 10 percent, or US$1 trillion, because of the financial crisis.
Americans normally spend about US$10 trillion domestically a year, or about 70 percent of the US GDP, Zhu said.
Chinese spend just US$1.5 trillion on goods and service, about 38 percent of GDP.
Export-driven economies such as China, Japan and Germany have been particularly hurt by the sharp fall in US consumption.
If US consumers spend US$1 trillion less annually, even a boost in Chinese and Indian domestic consumption is unlikely to make up the gap. However, experts said the “pain” is necessary.
Ken Rosen, a professor at the University of California-Berkeley, slammed the US model of excessive borrowing to drive spending and thereby growth.
“The Japanese, German and Swiss model is a better model. The US model is wrong ... If the whole world went with the US model, the planet would not exist,” he said.
Consumers in Japan, Germany and Switzerland set aside substantial savings unlike their American counterparts.
Rosen said that rebalancing the US economy would be “very painful” but that it “is the right thing to do.”
“The US certainly must temper its consumption patterns. From the environment point of view, it’s good,” Nath said.
Hiromichi Toya, a senior advisor to All Nippon Airways and a former vice foreign minister, said that “some structural change” would be a good thing.
Toya said Japan, like China, needs to boost domestic spending and that rebalancing by Americans and Asians is necessary.
However, Zhu warned that getting China’s population to make a substantial change to their spending habits would take time.
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