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.