How to boost consumer spending in China

China needs to run a continued fiscal deficit and let its real exchange rate rise to rebalance its economy towards domestic demand and thus sustain the impressive growth of recent years, the OECD has said.

Will OECD's strategy to get the Chinese to spend more work?

In its Economic Survey of non-member China, the OECD maintained its November forecast of an acceleration in gross domestic product growth to 10.2 percent in 2010 from 8.7 percent last year. China should let its currency rise to cool inflation and help ease economic distortions as it emerges from the global crisis, the OECD said.

A stronger currency, coupled with more social spending, could help to reduce China’s high savings rate, boost consumer spending power and narrow its trade surplus. .It is appropriate for the exchange rate to appreciate,. said Deputy Secretary-General and Chief Economist Pier Carlo Padoan.

PHoto: Maharepa Flickr

4 thoughts on “How to boost consumer spending in China

  1. I agree wholeheartedly that China needs to let its exchange rate rise – it should be allowed to float, and not be pegged artificially to the US$.

    However, I fear this is unlikely to happen – China understands very clearly that this would potentially cause manufacturing to move to other, cheaper, locations (Vietnam, perhaps?), which would raise unemployment in China. Some 20 million people there lost their jobs last year, apparently (>15% of the migrant labour force) and only 20% of college graduates were able to find work. I can only imagine the Chinese government doing all it can to prevent further job losses.

    However, they are making an effort to encourage domestic spending and reduce the savings rate, recognising that China must consume more of what it produces in order to decrease dependance on the West – its traditional marketplace. If this effort is successful, they will be able to afford a moderate relaxation in exchange rates, but I cannot see them floating the currency, even though this is recommended by the OECD.

Leave a Reply

Your email address will not be published. Required fields are marked *