IMF Chief Wisely Recognizes China's New Spending Culture

During a recent interview with Bloomberg, Olivier Blanchard, chief economist at the International Monetary Fund (IMF) noted the strategy of China is to

increase domestic demand levels and decrease savings rate, which he believes is too high.

As Beijing implements this process in order to re-allocate resources to the domestic sector, the Chinese currency–yuan or renminbi– will then be allowed to appreciate. He believes this is what we are going to see in the next few years.

Blanchard’s view of China here is spot on. Those of us living here in China see the country becoming a massive “shopping” paradise. In this regard, the American “spend” mentality has taken hold in a big way.

There is so much about the finances of the average Chinese which foreigners including many respected analysts miss by a long shot. Remember that as little as 15 years ago in China’s daily society, there was no such thing as “shopping and “spending”. There were no fancy malls and more; just work, eat, home, family and that’s it, with 90% of getting around by bike, scooter and bus or subway. Life was substantially less complicated, organized by and through your university or company which was managed by and through and as part of the government.

Now its a whole new world of capitalism, entrepreneurship and spending; a nouveau rich lifestyle for hundreds of millions who are experiencing this lifestyle for the very first time in their lives while their parents watch the societal circus in awe. The particular focused on shopping for females exists to a spectacular degree where entire multi-story malls are lined with nothing but women’s and household items for every stage of life.

Like the craze in the U.S., Japan and Korea, China is now electronic and gadget obsessed, if not more so due to the pent up deprivation that existed. Even when a typical Chinese buys a new car, they will often take it straight to the automotive center to put in different, upgraded, personalized upholstery!

If there is one thing to remember about China, it is to understand the stage of progress the blossoming society is in coupled with the vastly underestimated amount of cash to fuel to fuel this historically unprecedented shift toward a spending and consumption lifestyle with less and less restraint. I would suggest the government’s goal is to stimulate spending which will cut the Chinese savings rate in half from its known 30% level during the past decade. In which case, they would still be saving 10-15% which is still reasonable as the country continues its expansion forward.

Read the original story at Mario Cavolo