Those pesky Chinese consumers. If only they would buy more and save less, the global economy would rebalance, according to the economists.
Well, here’s a piece of news: unpaid credit card debt has surged by 126.5% this year, according to the People’s Bank of China. The central banks reckons that by the end of September, 7.43 billion yuan ($1.09 billion) of credit card debt was at least six months overdue.
Mainland banks issued 175 million credit cards in the first nine-months of the year, which suggests that the conventional wisdom that Chinese can’t get access to credit is being rapidly eroded (although there is a long way to go to catch up with the US, where 300 million people share an astonishing 1.5 billion credit cards between them).
Someone is clearly spending. China is, after all, already the world’s largest car market and consumer spending grew by an average of 8% every year in the past decade.
Chinese consumers, despite the lack of a social safety net and despite the high prices they have to pay, are spending. The problem, as Jonathan Anderson argues eloquently in the November edition of the Far Eastern Economic Review, is that the government is selling more than they can buy.
China’s huge companies have invested enormous sums in their capacity, building new factories, steel and aluminium plants, and machine tool ventures. They can produce far more than the Chinese consumer can possibly buy and when they ran out of local customers, they turned their sights on the global markets, helping to create the imbalance.
It is not that the Chinese are saving too much, it is that they are producing too much. So while everyone is waiting for the Chinese to start spending more domestically, the emphasis is misplaced.
Instead, China’s giant companies should start turning over their earnings to the government and households in the form of dividends, and exports should be reduced by allowing the yuan to appreciate.
Sadly, that all looks rather unlikely. In the wake of China’s enormous stimulus plan, the policy seems to be increasing capacity yet further.