Why China Can't Save Us
There have been a few articles recently which have quite genuinely been in awe of the Chinese government’s stimulus package. However, suggesting that this mega cash and credit injection will drag the world economy out of recession is just plain naive. Why you ask?
Chinese consumer spending is not the same as American consumer spending, and their preference is for goods they can actually afford, which means low-quality and low-cost Chinese manufactured brands such as Haier. The average Chinese can ill afford a car, let alone two or three. At best they will try and buy an air conditioner, television, washing machine and a scooter. They do however, generally possess a mobile phone. But it’s going to be some generic cheap one.
There is little to no consumer protection in China. This is good for business in one sense - they don’t have to worry about pesky things such as Quality Assurance and Customer Support and Warranties. It reduces costs. However, the result is also that the average Chinese person is hesitant to spend money since they can be so easily ripped off. End result? Consumer spending isn’t what it could be.
The Chinese government’s stimulus package is largely pork barreling and fluff. If you travel to China, you will notice there is massive spending “big-ticket” projects - that is, big things which are highly visible and symbolic (bridges, highways, olympic stadiums), and not necessarily on things which are needed (schools, hospitals and decent local roads). Much funding is diverted into the pockets of government officials and their “friends”. The Chinese economy is incredibly inefficient from all this corruption.
Foreign goods are expensive and out of reach for 99% of Chinese. Let me tell you something amusing. In Shanghai, luxury goods cost 50% more than they do here in Melbourne. They are status symbols for the incredibly small minority of rich people in China. If you want to make money in China, you’d better get your branding sorted, and make sure it’s exclusive and luxurious. But it’s very hard for foreign companies to make money in China. The government is quite happy to undercut you and help the local competitor. It’s not a fair playing field. It’s completely rigged against you.
Chinese are thrifty, so chances are that if there is even some trickle down to the average person, they are going to save their money (especially given the economic storm clouds) rather that spend it. Hardly any Chinese have credit cards. They are are not going to spend money they don’t have.
Don’t believe what the government says about the level economic activity. 8% GDP growth, after a 24% drop in exports? In an economy which is pretty much export driven, it’s complete bullshit.