Does China need Safety Nets?

Published on Author destefano

As signs show that China’s economic growth is slowing down, China’s government is to beginning to look at ways to keep economic growth at their desired rate of 7.5% a year. As stated in previous post, the government has a number of strategies that could combat economic slow down including “cutting bank reserve requirements,loosening of monetary policy, and more rapid infrastructure investment.” Currently the government is hoping to increase consumer spending to reverse its slowing economy. Although, in China, that is harder said than done. Historically, as shown in our readings for class, Chinese households hate spending, and instead prefer to save it for a rainy day.

How can the Chinese government persuade Chinese consumers to spend more? According to Stephen Roach, a professor a Yale university, its safety nets; “Without the safety net, all this central planning is going to fail.” When referring to safety nets, Mr. Roach means universal health-insurance and better pensions. Under the current health-care system established in 2009, the government has spent $137 billion, meaning an individual receives about $30 a year to cover medical cost. Combined with patchy pensions, many retirees get by on 100 to 500 yuan a month. It is easy to understand why Chinese consumers would rather save their money with the burden of medical bills and retirement. If the Chinese government wants to open up consumers wallets it must first claim fears of insecurity by providing better safety nets.

7 Responses to Does China need Safety Nets?

  1. “Safety nets” could be a good way for China to accomplish their growth goal. I think it is peculiar that they wish to avoid any sort of outright “stimulus” plan. Perhaps they think that this phrase in particular has negative connotations that could actually lead citizens to save more in the face of economic trouble rather than go out and spend.

    • I agree in full. It is all about sustainable growth, and as Tom Miller put it, “healthy urbanization.”

  2. The need for safety nets is essential in China because it will promote confidence in consumers. Since China’s goal is increasing domestic consumption promoting such consumption includes increasing employment and ensuring citizens that in the event of some shock they will not have to rely completely on their own savings.

  3. Well I thought China was trying to slow down its economic growth. That is why they set their target at 7.5 % growth rate for 2014 instead of higher (it was 7.7% last year).
    As China becomes a consumer rather than a provider in the global economy, the Chinese consumption has been rising recently. One way to boost up more consumption is to provide higher minimum wages. As wages go up, Chinese will spend more money on consumption.

  4. It is important to note demographic factors in constructing a “safety net” that will properly serve the Chinese people. Creating a safety net that will service over 1 billion people is a much different task than creating a universal healthcare system in say, Canada, which only has a population of circa 22 million.

  5. A note: “rainy day savings” is a synonym for the technical term “precautionary savings,” money set aside in case you get sick. Retirement savings is different.