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Ironically, China’s leadership has long recognized the importance of boosting domestic consumption, at least publicly. Over the past two decades, successive leaders have talked up China’s massive market, with a burgeoning middle class estimated at 400 million people and 140 million households and growing.
But over the same period, consumption as a share of China’s GDP has stagnated at just over 50%, compared with over 70% in major economies.
“Suffering” and Greater Benefits
Much has been written about why Chinese consumers are reluctant to spend. The main reasons include their propensity to save and the lack of adequate social welfare and healthcare.
Less often mentioned is that stimulating consumption has long been a priority for China’s leadership, relative to exports and investment, the two traditional engines of growth.
This has a lot to do with the party’s ideology and management philosophy.
After the founding of the People’s Republic of China in 1949, Mao Zedong pledged to build the country into a socialist paradise, while also pouring resources into industrialization and national defense, paving the way for China to own all of the United Nations’ industrial classifications—widely considered the only country in the world to do so.
Concepts of consumption or welfare were not considered, especially in an era when most people could barely afford to eat.
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