China Offers Subsidy To Boost Spending At Home Facing slumping demand for Chinese goods overseas, China's government is trying to stimulate consumption at home — spending $2.25 billion to subsidize discounts on made-in-China fridges, washing machines, cars and more. But Chinese citizens' tendency to save their cash could prove to be a hurdle.
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China Offers Subsidy To Boost Spending At Home

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China Offers Subsidy To Boost Spending At Home

China Offers Subsidy To Boost Spending At Home

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STEVE INSKEEP, host:

China's government hopes it will do good if it pushes its citizens to buy more stuff - new mobile phones, new televisions, even new cars. The government is hoping to boost consumption by poorer residents to help offset the slumping demand for Chinese products overseas. NPR's Louisa Lim reports from Shanghai.

LOUISA LIM: Cai Jishou stands open-mouthed in front of his new red fridge, a burly farmer out of place in a department store. He's barely listening as a shop assistant demonstrates the features of his new fridge.

Mr. CAI JISHOU: (Foreign language spoken)

LIM: We've been waiting for years to buy this, says Mr. Cai, grinning. We're very pleased.

(Soundbite of music)

LIM: He's especially pleased since the Chinese government is chipping in. It's giving him a 13 percent subsidy, around $40 towards his $300 fridge.

Facing slumping demand overseas, Beijing's trying to make its economy less export-oriented by stimulating consumption at home, so it's spending two and a quarter billion dollars subsidizing discounts on made in China fridges, washing machines, mobile phones, televisions and cars for its rural residents.

Ms. YAN MINGZHU (Saleswoman): (Foreign language spoken)

LIM: We used to sell 10 fridges a day, says saleswoman Yan Mingzhu, who works in the far northwestern city of Xining. Now, we're selling double that.

In pilot projects, the quaintly named Electrical Appliances to the Countryside scheme lifted sales by 40 percent. It's running alongside other experiments in boosting consumption.

Unidentified Male: (Foreign language spoken)

LIM: One well-publicized scheme was dreamed up by the city of Hangzhou, which is encouraging tourists to visit by distributing free travel coupons in Shanghai and other cities. Hangzhou's also paying 10 percent of civil servants' salaries in shopping vouchers, and it's giving out free shopping coupons.

The problem for the Chinese government is that its cautious citizens save too much and spend too little.

Ms. SHERRY ZHAO (MBA Student): I save 70 or 80 percent of my salaries in bank account.

(Soundbite of laughter)

LIM: MBA student Sherry Zhao is a case in point. Working in a bank, she earned twice as much as her friends, but lived at home. She was saving for her studies, but also because, she says, that's what Chinese people do.

Ms. ZHAO: We Chinese have a tradition. We do not like to waste money. If I buy things too much, and my mother will criticize me.

LIM: China has the world's highest personal savings rate. In 2005, Chinese saved 25 percent of their disposable income, compared to 0.7 percent in the U.S. This has contributed to huge global trade imbalances. Chinese savings have, in effect, been funding American spending.

So, according to economics professor Zhang Jun, from Fudan University, stimulating Chinese consumption can only have a limited effect.

Professor ZHANG JUN (Economics, Fudan University): In the short range, it doesn't really solve the problem of the global imbalance. We could say to the U.S. side that the U.S. needs to actually save more, so that they could have ease the problems of global imbalance.

LIM: There are some signs of optimism. Chinese retail sales were up 15 percent from a year earlier in the first two months of the year, better than some had predicted. But speaking in Shanghai, economist and Nobel laureate Joseph Stiglitz cautions that China can't save the world.

Dr. JOSEPH STIGLITZ (Economist, Nobel Laureate): China's level of consumption -the size of economy - is still a small percentage of the global economy. It's simply not big enough to pull the world out of the downturn. On the other hand, it can play an important role, and particularly an important role for the people in China.

(Soundbite of engine)

LIM: But back in the countryside, China's still facing problems turning its peasants into consumers.

Ms. LU GUAMI (Farmer): (Foreign language spoken)

LIM: I'm not buying a fridge, says 48-year-old Lu Guami, shivering as she looks at the light snow on the ground in Shangxinzhuang village near Xining. I still have to pay for my son's education.

And like so many other uninsured peasants, she worries about the cost of getting ill.

Beijing has recently ramped up spending on education and social welfare. But to really create a consumer society, China needs to build a social security system its people can trust. And that's a task that will take years, if not decades.

Louisa Lim, NPR News, Shanghai.

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