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UPDATED: November 16, 2009 NO. 46 NOVEMBER 19, 2009
The Paradox of Chinese Consumers
Li Peilin, Director of the Institute of Sociology at the Chinese Academy of Social Sciences, shares his insight into China's consumption issue
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SMELLS GOOD: A woman looks at various foreign perfume brands in a department store in Nanjing, capital of Jiangsu Province (CFP) 

Never before has China's consumption issue attracted so much attention from various countries as it has under the current gloomy economic conditions caused about by the global financial crisis. Domestically, China relies on national consumption to stimulate its own economy, which previously depended heavily on exports; Internationally, scholars in the United States alleged that China's high savings rate was the origin of this financial crisis. Questions have been raised concerning the direction of China's consumption trend and whether the country should shift into a high consumption gear similar to that of the United States and Europe. Beijing Review reporter Liu Xinlian interviewed Li Peilin, Director of the Institute of Sociology at the Chinese Academy of Social Sciences, China's top think tank, for his insight into this issue. Edited excerpts follow:

Beijing Review: It is widely accepted that Chinese society has traditionally embraced high savings and low consumption. What is your opinion?

Li Peilin (CNSPHOTO)

Li Peilin: The facts in this matter do support this general assumption. China's total consumption, calculated in U.S. dollars, is less than 10 percent that of the United States. What's more, the consumption rate—the proportion of residents' total consumption accounting for total income—has witnessed a continuous decline in the last 10 years in China. Currently, the United States' consumption rate stands at more than 70 percent, Japan's at more than 60 percent, while China's hovers around 40 percent. China's low consumption rate is closely linked to its high savings, of which the growth rate is higher than that of its overall income and consumption.

What factors contributed to the steadfast adoption of low consumption and high saving habits?

Three major reasons may account for this tradition.

Differences in consuming cultures have been a primary contributor: Americans accepted the idea of premature consumption and credit consumption, while Chinese people would rather save money for their offspring.

It also has something to do with Chinese people's low income. As a result of low income, Chinese people have become accustomed to living frugally. Before the reform and opening up policy was adopted in 1978, China's economic policy attached great importance to an accumulation of resources as opposed to unnecessary consumption. At that time, the rationing system featured a coupon-based supply, and as a result Chinese people honored frugality and disapproved a luxurious lifestyle. People were required to lower their consumption to a minimum while excessive consumption was seen as "pleasure seeking" worthy of criticism.

These conservative habits were an unavoidable consequence of sluggish economic development as China suffered a short supply and low production capacity of everyday necessities in the years before 1978.

What should not be neglected is that Western countries also adopted similar conservative consuming ideas during the initial stages of their own development. Only when production capacity reached a high level could importance be attached to consumption. When this time comes, mass consumption will work as the main propellant for economic development.

After the implementation of the policy of reform and opening up, China began to ease restrictions on consumption. The long-restrained consumption desires were released within a short period of time and by the 1980s, China witnessed a consumption surge. At the same time, more residents were becoming interested in durable consumer goods, such as TV sets and refrigerators.

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