Saturday, November 15, 2008

Chinese Fiscal Stimulus and the US Economy

It was almost two years ago when several of us were hoping for more Chinese domestic demand stimulus and less Chinese mercantilism. OK, we were also advocating US fiscal restraint on the hope that more US exports would make up for the reduced US domestic demand. In today’s environment, the smart call seems to be for a large US fiscal stimulus.

Ariana Eunjung Cha reports that the Chinese may be about to be consuming a lot more:

Long known for high saving rates, China’s middle-class consumers are starting to spend like their American counterparts ... Increasing consumer spending is a key goal of the $586 billion economic stimulus package unveiled Sunday by China’s leaders ... James E. Quinn, global president for New York-based Tiffany, said in an interview that Chinese customers are the “fastest-growing segment” of its business. “A lot of American customers have a complete wardrobe of jewelry, passed down from previous generations. That’s not the case in China. Chinese consumers are at the early stage of acquiring a sense of style and appreciation for design in jewelry.” U.S. companies have been so successful in China because “Chinese consumers have a ‘look up to the rich’ attitude and the United States is the world’s top developed country in their eyes,” said Gao Tao, a consultant for the International Brand Association in Beijing

But before we anticipate an export led boom, check out what Brad Setser has to say:

the non-petrol goods deficit is now moving in the wrong direction. It increased from $29.3b in June to $35.6b in August. Non-petrol exports fell by $9.9b over the last two months, while non-petrol imports fell by “only” $3.7 billion. The sharp fall in exports shows up clearly in a chart showing “real” non-petrol goods exports and imports.

The Chinese fiscal stimulus is certainly good news as it may soften the bleak news on US export demand, but we will still need to increase US domestic demand even if that means living with a large current account deficit for several more years.


Anonymous said...

So PGL, how do you see China's (forced) move to a more labor intensive economy affecting intra-regional production/trade which has become centered on that nation as export hub?

jamzo said...

i watched a c-span book promotion video with david smick "the world is curved"

his position is that looking for the chinese to become consumers is foolhardy

as i understood his words

the lack of social net and demographics will determine the extent of the chinese consumer economy

savings are necessity for aging chinese - they have to save for retirement

the proportion of chinese population moving to aging category is largest anywhere
and will limit the extent of consumer economy that can be developed

Anonymous said...

I believe China can prevent aging a bit by accepting immigrants, however, it WILL be a problem. On the other hand, I believe Chinese society is a bit different, "retirement" is not so usual as in the western world. I mean - people work until they feel they should be working - so when the population gets older, everybody will work a bit longer...
Take care

Anonymous said...

Though the high saving rates show the great potential of Chinese further consumption market and China’s middle-class consumers are starting to spend like their American counterparts .to. stimulus. economic greatly there is still a long way to go ,for the deep move of Chinese consumption power lies in the Chinese culture.