1. Economic Background of China
- Household deposits have a negative real return on their deposits as a result their earnings are reduced, leading to lower spending.
- Low cost of borrowing leads to investment in real estate which has given significantly high returns for investors
Even though China has a significantly higher CAGR in terms of per capita, the consumption led economies (excluding India) have started at higher initial base and have higher percentage contribution of GDP to health care. By 2020, China is looking at universal healthcare using a three way contribution (individual, provincial and central) and healthcare spending is expected to touch 1 trillion USD by 2020 making it the second largest health market in the world. Furthermore China has implemented mandatory welfare payments for employers as well as individuals in order to tackle the problem of social insurance.
The inflation rate in China reached a low of 1.9 percent in September 2012 and has seen a declining trend after reaching high of 6.5 % in August 2011, further strengthening possibility of consumption driven economy.
4. Steps that can be taken to increase consumption
The Dragon and the Elephant – David Smith, Published by Profile Books, 2008 Edition
Sustaining China’s economic growth after the financial crisis- Prof. Nicholas Lardy, IMF presentation 2012
China widens pension coverage as population increases: http://english.cntv.cn/20120702/106071.shtml
China Statistical Year Book 2011
China Health Care spending may touch $1 trillion by 2020: http://www.bloomberg.com/news/2012-08-29/china-health-care-spending-may-hit-1-trillion-by-2020.html
China Briefing-5, October 2012
Key targets of China’s 12th five year plan: http://news.xinhuanet.com/english2010/china/2011-03/05/c_13762230.htm
National Bureau of Statistics of China
China’s inequality Gini out of the bottle: http://blogs.wsj.com/chinarealtime/2012/09/17/chinas-inequality-gini-out-of-the-bottle/
China’s Provincial GDP figures in 2011: http://www.china-briefing.com/news/2012/01/27/chinas-provincial-gdp-figures-in-2011.html
Bloomberg, Aug 20: http://www.bloomberg.com/news/2012-08-20/china-new-home-prices-rebound-after-interest-rate-cuts.html
Hukou and consumption heterogeneity: – Binkai Chen, Ming Lu, Ninghua Zhong
China Luxury Tax, HSBC Global Research, 18th July 2011 http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=vPe3ZF0NzA&n=303000.PDF
National Tourism Administration, China