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Ka Piu Ku


Word Count: 1977/Pin:10634

Subject line

Can changing the olden consumption culture of Chinese save the economy?

Ka Piu Ku

The recent unfolding of events indicates a world that is increasingly volatile and unpredictable. Under the shadow of the most serious financial downturn after the Great Depression, elites from every part of the world gathered and contemplated plans to steer away our economy from the crisis. Many attempts have been devised, some of which encourage consumption,

and China is one of the nations who is implementing

consumption stimulation plans. Whether the economic plan in China will help the declining economy is still guesswork. However, it is certain that the plan will jeopardize local culture identity. The plan is regarded by the Economist as bringing in the western consumption ideals. available at: http://www.economist.com/world/asia/displaystory.cfm?story_id=13145087).

(Case

According to BBC 1 , in

2007, the saving rate of Chinese peasants is 91% (1- consumption rate %). The saving rate of general Chinese population is 46%, as reported by XinHua News. Whereas, the saving rate of Americans is -0.4% in 2004 and 1.7% in 2008 – a figure fluctuating around 0%. Against this backdrop, Chinese peasants have a habit to save and not to consume. It is under this economic plan and Chinese consumption culture, which hopes to change the local consumption culture amidst the economic crisis, I present my essay. I will begin by illustrating the American and Chinese peasant consumption culture respectively. Whereupon, I will put forward the consequences that when American consumption culture is instilled to the rural dwellers. Lastly, I will make suggestions concerning the current culture against economic development issue and possible resolutions.

1

“Can China really save global economy� (translated title) http://news.bbc.co.uk/chinese/trad/hi/newsid_7890000/newsid_7892200/7892269.stm (assessed 4 Mar, 2009)

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Ka Piu Ku

Of “Sex and the City”

The Americans consumption culture

The confusing definitional problem between consumerism and consumption culture should be solved for the sake of clarity and framing this essay. Consumerism is, in economic terms, the belief that the market should be dictated by consumer free choice. Consumption culture, however, is the consumption habit or pattern. Although American consumption does not mean universal consumption, it is the icon of western consumption ideals. Thus, it is employed to illustrate the western consumption culture. Generally, Chinese tend to save a lot more than many countries. According to the Adam Smith’s Wealth of Nation 2 , the consumption here is consuming luxuries goods which, when lacked, are considered a bad conduct. For instance, as Adam suggests, having a pair of leather shoes is not necessary but it was considered a necessity of life by both sex in England. Marx Karl defines it as “who dies with the most toys win”. In other words, under the culture, one’s “self” equals to one’s material wealth.

2

“An Inquiry into the Nature And Causes of the Wealth of Nations” Adam Smith, http://www.adamsmith.org/smith/won-b5-c2-article-4-ss2.htm (assessed 27 Mar, 2009)

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Global Initiatives Symposium in Taiwan 2009


Maslow’s Pyramid of Needs Source http://www.mrdowling.com/602-

maslow.html

The consumption culture is explainable by Maslow’s pyramid of needs3. Referring to the diagram above, the pyramid has five levels. The top three levels are non-basic psychological needs. For instance, the desire to be recognized by the others and accomplishing goals; while the lowest two is basic survival needs. Maslow explained that it is our innate desire to progress upward when the current level is secured. America has well-developed social welfare and medical system and pension schemes. According to the welfare system of American History encyclopedia 4 , there are unemployment insurance, old age pensions, children aid, medical loans, etc readily available to their citizens when needed. Against this background, their physiologic and safety needs are secured.

Relative expenditure percentage by Americans

3

MASLOW'S HIERARCHY OF NEEDS http://honolulu.hawaii.edu/intranet/committees/FacDevCom/guidebk/teachtip/maslow.htm (assessed 4 Mar, 2009) 4 US History Encyclopedia: Welfare System http://www.answers.com/topic/welfare-system (assessed 4 Mar, 2009)

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Bliss or Misery? Contemplating the Engagement of Cultural Forms and Economic Progress


Ka Piu Ku

It is, therefore, Americans basic survival needs are secured. They can afford to, and they also desire to, move upward and attain loftier values. They adopt an extravagant consumption way of life which leads to their low saving rate -0.5%, compared to China’s 46% as mentioned. Americans (according to the Percent distribution of total annual expenditures by major category, Consumer Expenditure Survey 20085 ) spent 9.2% of their annual expenditures on apparel and service and entertainment. There are only 0.3% on reading, 6.9% on food and 1.8% on gasoline, although these commodities are not infrequently reported expensive. The higher the expenditure that a particular category shows, the higher preference the population has since Americans are entitled to the free choices of goods. Their considerable amount of spending on clothing, leisure and entertainment, when compared to all other items, suggests that American consumption is placing high values on material wealth on the cost of huge consumptive debts – a debt which is not employed to generate more income.

5

Consumer expenditure survey, http://www.bls.gov/cex/ (assessed 4 Mar, 2009)

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Let them eat cakes

the Chinese peasant consumption culture

As marked by its preference to save than to consume, Chinese consumption, which is especially notable among peasants, are not asked infrequently by America to consume more. According to consumption survey conducted by HSBC (HK), as cited by Xan Dong international commerce centre6, it is not that people never consume anything unnecessary in China. Even some peasants have mobile phones now. From the survey, however, the two biggest driving forces for Chinese to save are purchasing fixed assets (such as houses) and supporting children education. For peasants, as stated in Chinese official’s Ban Yei Tan magazine7, they also save out of fear of uncertainties. They believe that one must repair their house before it rains. Furthermore, they are also constantly ripped off by the rich that keep their income constantly low despite the surge in national GDP in these few years. According to the “How Will China’s Saving-Investment Balance Evolve?” research8 and nominal gross domestic product of China from 1952-20049, the rural saving rate remained more or less the same regardless of the surging national GDP. (See Diagram Below)

6

“Chinese turning to consumption culture can stimulate import” http://www.sdtrade.com/plus/view.php?aid=1355 (assessed Mar 4, 2009) 7 “Stimulating peasants to spend is a short-sigted move”, http://chinareviewagency.net/crnwebapp/doc/docDetailCreate.jsp?coluid=58&kindid=1221&docid=100873221&mdate=0131001921 (assessed Mar 4, 2009) 8 How Will China’s Saving-Investment Balance Evolve?”, Louis Kuijs http://www.dajun.com.cn/saving.htm (assessed Mar 4, 2009) 9 http://en.wikipedia.org/wiki/File:Prc1952-2005gdp.gif

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Bliss or Misery? Contemplating the Engagement of Cultural Forms and Economic Progress


Ka Piu Ku

The reasons for the saving rate remain constant, besides the foregoing two driving forces, are culture and policies. Chinese peasants generally cling tighter to a number of olden teachings. They believe saving up is a virtue, one should not attempt malicious means to seek profit even under poverty (Confucianism) and to adapt a natural way of life (Taoism), etc. The teachings and proverbs have made Chinese endure poverty and save. There are also policies that force peasants to save. For instance, there are countless reports that the medical system in China does not permit medical loans to patients even in the face of serious illness or death 10 . According to Economic Information Daily, the main pie of Chinese social welfare system is only accessible by urban dwellers instead of rural peasants11 10

Tears save sick China mother from cremation alive, Reuters http://www.redorbit.com/news/oddities/308130/tears_save_sick_china_mother_from_cremation_alive/ (assessed 4 Mar, 2009) 11 What kind of social welfare system does China need?, Economic Information Daily, June 26, 2002 http://www.globalaging.org/pension/world/socialsecurity.htm (assessed Mar 4, 2009)

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Against the above grounds, Chinese peasant save because they prefer saving and must save because of the fear of uncertainties in the future. And their consumption habit, which turn most of their money to income generating areas, is fitting the current social system.

The Clash Infusion

The consumption culture in America is backed by well-developed social welfare system but the one in China is backless. In this part, the consequences of infusing American consumption culture to china will be analyzed. The first victims to suffer are banks, especially peasant banks. There are banks that target peasants in China. For example, the Postal Savings Bank of China, according to people.com.cn12, has 60% of it depository networks and 70% of its exchange networks located in rural areas. According to the research “Asian Values”13, Banks in China rely on the deposit of civilians to provide loans to Stated owned enterprises (SOEs). However, the SOEs have become inefficient businesses which are very expensive to upkeep (some of which are due to management buyout attempts). The signs that banks can recover the debts are fading. The major source of money that keeps China banks alive is the high saving rate of the population. Peasants thus become the VIP of not only the peasant banks or also some other commercial banks in China. If Americans’ consumption propensity – the -0.5% rate– is bought to the peasants, money will be drawn out from banks quickly leading to a sudden surge in money supply in the market. Worse still, it also increases the possibility of bank defaults: Peasants drawing out money from banks lowers the solvency of banks, and insolvent banks prompt clients to withdraw.

12

Turning network advantage to competitive advantage (translated title) http://big5.people.com.cn/gate/big5/finance.people.com.cn/GB/5907243.html (assessed Mar 01, 2009) 13 “Asian Values” From Dynamos to Dominoes? By Lucian W. Pye (2000)

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Bliss or Misery? Contemplating the Engagement of Cultural Forms and Economic Progress


Ka Piu Ku

Besides banks, the construction and real estate market will also be seriously affected. As mentioned, one of the biggest drives for peasants to save is purchasing houses. Referring to XinHua news, there are 29% of Chinese peasants who can afford purchasing houses of $300,000 RMB or above14. While a 7 acreage of a peasant house is selling at $210,000 RMB (average price per square meter based on carpeted area is $3,500)15, from the report of news.nen.com.cn. If their savings are to be withdrawn and used, this will inevitably affect the construction works and the sales of the real-estate market. It is because there will be less people who will be able to afford buying houses. Added to the above, the peasant employment will plummet. According to the CEO of SOHO, Poon Shek Nghai16, every construction projects involves many peasants. Their biggest single project alone employed 6,000 peasants. When the sales of real-estate fall, the unemployment rate of the peasants certainly surges. Last but certainly not the least, as children education is the second largest reason for peasants to save and the largest expense of them, spending will decrease literacy rate and prolong poverty in rural areas. It is one of the Chinese peasants’ noblest beliefs that even they have to endure poverty; they want their children to get out of it by all means. Despite hardship and hunger, many famers send their children to schools. However, as mentioned in Gwei Chau Metro News17, due to the high mobility of the peasants, it is impossible to provide a statistical figure here. If peasants consume like Americans, whose education expense is subsidized by their government, there will be fewer children going to school to receive education. Referring to China Labour Bulletin18, children education has occupied one-third of a family’s total expense generally. For those who have lower incomes and 14

Yam Chi Keung says real-estate is not extortionate; peasants can afford houses too http://big5.xinhuanet.com/gate/big5/news.xinhuanet.com/house/2008-12/01/content_10436634.htm (assessed Mar 01, 2009) 15 Investing in peasant houses is not protected by laws http://liaoning.nen.com.cn/77994956827918336/20071213/2367087.shtml (assessed Mar 02, 2009) 16 Peasants are the biggest victims in the real-estate turmoil (translated) http://64.233.189.132/translate_c?hl=zh-TW&sl=zh-CN&u=http://house.focus.cn/news/2008-1009/543413.html&prev=/search%3Fq%3D%25E8%25BE%25B2%25E6%25B0%2591%25E3%2580%2580%25E 6%2588%25BF%25E5%259C%25B0%25E7%2594%25A2%26hl%3Dzh-TW%26client%3Dfirefoxa%26rls%3Dorg.mozilla:en-GB:official%26hs%3DG6K&usg=ALkJrhgeTEZcJUbQhXapaaYLzXZSFIV2Qg (assessed Mar 01, 2009) 17 Peasant children education to be solved (translated) http://gzdsb.big5.gog.com.cn/system/2009/02/18/010487809.shtml (assessed 02 Mar, 2009) 18 Children Education, lifestyle and housing hinges peasants to consume http://www.clb.org.hk/chi/node/61976 (assessed 02 Mar, 2009)

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many children, it may well be above one-half. Education termination due to budgetary concerns is not surprising to see. It is, therefore, even they are asked to consume with subsidies from the government, and the nation will entail a plummet of literacy rate.

The Road Ahead

Conclusion and suggestion

To conclude, borrowing the American consumption model into to the rural areas of china leaves much to be desired. I am not suggesting that the West’s consumption culture is inherently a bad thing. I agree that when it is practiced appropriately, it can improve peasants’ quality of life. However, considering the current global economic downturn and social welfare system in China, it is still too early to ask the Chinese peasants to drop their saving culture and go spending in the cities. Nonetheless, the promising fact is that this Chinese consumption culture is not reliant on debt, which is a healthy sign. And Chinese peasants’ current spending habit, that gives higher priorities to income generating areas such as education, is positive to the economy as a whole. Culture cannot be changed overnight. Still, one way to improve the economy is devising policies that take into account the saving culture of Chinese people. Only after the poor is exorcised of their survival problems, that they will start to help pushing the wheel of the economy, ensuing collective wealth. Therefore, to encourage peasants to spend, instead of direct subsidizing, the Chinese Central Government should allocate their resources to the social welfare system. Housing loans and education system should be subsidized and be made more assessable, so that the plans will not conflict with the old Chinese saving culture and in the meantime secure their basic survival values. Ultimately, they will be freed from fears, start to consume and boost the economy. Culture shapes how a person views and approaches the world. Ruthlessly destroying or changing it for improvident goals should be given a second thought. Culture can be employed as a nation’s un-outsourceable competitive advantage especially when everything is outsourceable and outsourced. It is hoped that the Chinese Central Government can at least preserve one good traditional Chinese value and be respectful of it.

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Bliss or Misery? Contemplating the Engagement of Cultural Forms and Economic Progress


Ka Piu Ku

Global Initiatives Symposium in Taiwan 2009

Ka Piu Ku  

Ka Piu Ku available at: http://www.economist.com/world/asia/displaystory.cfm?story_id=13145087). According to BBC 1 , in 2007, the saving ra...

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