Everyone knows China needs to consume more and spend less.
Indeed, the Chinese government is of the same view, and many regard the significant contraction in China?s current account surplus as a sign that this is happening. BNP Paribas? economists?Richard Iley, Dominic Bryant and Mole Hau?present data to show the dwindling current account surplus actually masks accelerating imbalances within the economy.
BNP economists suggest easy ways to raise consumption levels: raise the dividend payout from state-owned enterprises and raise interest rates. An IMF projection cited by them says uncapping deposit rates would boost household income by 4 percentage points of GDP.
Even more interesting is the point made about why China?s demographics militate against a quick change in savings habits. There is enough data, it appears, to show that households with more sons tend to save more and, since there are a lot more households with sons than daughters, overall savings will take a few decades to reduce.
