Keys to China's successful transition to a consumer economy
China's current export-led, investment-driven model of growth is no longer sustainable in the long run, and the nation is rebalancing its economy to more of a consumption-based growth model, which is clearly good news for the world, especially in a time of global recession when other major economies, such as the United States and euro zone are seeking new sources of growth.
The hidden potential of the 1.3 billion Chinese consumers, once unleashed, will make China the world's largest consumer market and the top export destination for other major economies.
For its own sake, China also needs a successful transition to a consumer economy to rebalance its economic structure and put the economy on a healthier and more sustainable footing.
The question here is how to successfully implement the much-anticipated transition. What steps are needed to build a modern consumer society in China?
Steven Roach is the former chairman of Morgan Stanley Asia and a current senior fellow at Yale University. He believes there are three building blocks: providing greater stimulus to the services sector; a significant further push toward urbanization and improving the social safety net.
He recently shared with me the specifics.
"Especially three of them that I think are the most important in building a modern consumer society in China," Roach told me.
"One, providing greater stimulus to the services sector in China. And it's important because services create a lot more jobs for years of output than manufacturing and construction."
"Secondly, a significant further push toward urbanization. The urbanization trend in China has been unprecedented, but there's still a good deal more to go, and I think the government is very committed to that, and that's also important to consumption, because urban workers earn about three times more than those living in rural communities."
"And the third building block is emphasis on social safety net. I think the government has made a good progress in increasing the coverage of the member of Chinese workers, but not enough progress made in improving the funding of these plans. So, the benefited levels still are low. And I think the response of the Chinese families tend to save much rather than consume their rapidly growing incomes. So, I think the one area that needs great emphasis in the future is in funding of social safety net, retiring and medical care in particular to give Chinese families a greater sense of security about the future so they'll spend more and save less."
China's great rebalancing act is already underway. With a successful transition, the Asian Giant will still be a major growth engine for the global economy for many years to come.
(This is a reprint from the People's Daily Online of the August 27, 2013 edition.)