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Poor Chinese Consumption Data Creates Savings Myth

Jun Zhang, Zhu Tian - April 2013

Speed Read
  • The generally held belief that China’s consumption is too low is a myth based on inadequate theory, a misreading of official statistics and the use of market exchange rates for making international comparisons.
  • Chinese official statistics underestimate consumption expenditure on housing, they omit consumption paid for as benefits by the corporate sector and there are a number of problems with the household expenditure surveys employed.
  • An adjustment for statistical issues suggests that the rate of consumption is 60-65% of GDP and not the 48% based on the widely quoted official statistics figures.
  • Using purchasing power parity adjustments China had a rate of consumption of 60.9% of GDP in 2010 quite similar to the level experienced by other East Asian economies.

Slowing Chinese economic growth and a sluggish world economy is leading to increasing calls for China to boost its domestic consumption. The Chinese consume too little and save too much, and because of this, China has had to rely on investment and exports for its phenomenal growth in the past. Indeed, according to official statistics, consumption makes up only 48% of China’s GDP, which means a gross savings rate of 52%. These savings finance not only domestic investment at the rate of 48% of GDP but also, in the form of capital outflow, net exports at 4% of GDP. The worldwide rate of consumption is 80% of GDP, with the United States at 88% and European Union at just above 80%. China’s consumption rate is much lower than the rest of the world. It is also l...

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