Can consumption become a key driver for China's long-term growth?
The majority of media outlets claim that China's current economic model is running out of steam, and the nation should move away from the current investment-driven model to a new one that relies on domestic consumption.
But the question here is that is consumption a reason for economic growth or an outcome of it?
At its current development stage, with its per capita GDP lagging well behind that of developed countries, can China become prosperous by consuming? In other words, can domestic consumption really play a major role in powering the Chinese economy from a long-term perspective?
Jing Ulrich, managing director and chairman of global markets, China at J.P. Morgan, recently told me why she believes consumption could become a key driver of China's long-term economic growth.
"I believe so," Ulrich said firmly. "In the past many years, China's economic model has been very reliant on exports, but that year is over. China now has an economy that is already the second-largest in the world. China needs to really transition the economy to more of a consumption-driven economy."
However, Ulrich believes that there are some preconditions that need to be met.
"Chinese citizens save a lot of money. They save about 40 percent of their income. A lot of them save for a reason, because there is not enough social safety net in place, education, healthcare, a lot of these social services are not covered by the government. So, individuals have to save a lot of money to pay for their children's education, their parents' retirement and their own healthcare," said Ulrich.
"So I think the central government can really improve social services that would be a very big boost for domestic consumption."
As people's wages and standards of living increase, so will consumer demand.
(This is a reprint from the People's Daily Online of the August 26, 2013 edition.)