Private Consumption in Chinese Economy

PRIVATE CONSUMPTION IN C

HINESE ECONOMY

China, as the world's second largest economy, has stunned world with its growth speed. Among the 6.04 trillion US dollars of GDP in 2010, the private consumption is relatively small compared to other huge economies. In this essay, I would briefly analyze the private consumption in China from three topics: the present situation, the causes and what to improve.

Usually, there are three main factors that stimulate the growth of a country's GDP that are consumption, investment and export. And generally speaking, the consumption should play the biggest role in the contribution of GDP. However, according to the State Statistics Bureau, the percentage of private consumption in GDP has kept declining since 1978, right after the cultural revolution:

Above graph has shown that in 2010, the consumption sector counts only around 35% of the Chinese GDP. So, what it "should" look like? Below is a graph from Mckinsey's report in 2008:

In most other countries, 55%-70% is a normal range of the percentage of private consumption in GDP. But we can see that from 2008 to 2010, the percentage again declined about 2 percent to 35% in China, as a new record. This phenomenon is very rare if we scan the history of most other countries. In the United States, the consumption sector counted for 50% even during the World War II; In Japan and Korea, the numbers were also above 50% during their industrial development periods.

So, what caused China's private consumption that strange? Among numerous reasons, there are several have to be mentions.

First, Chinese residents tend to save far more than their counterparts. According to State Statistics Bureau, an average Chinese family saves 25% of its income, which is 6 times of an average American family and 3 times of a Japanese family. I think this is not an economic reason but more likely a cultural difference. Chinese people tend to think that it is "safe" to deposit money in the bank...