Monday, November 21, 2011

China plan to increase consumer spending

Some of the infrastructure in fairness is stuff that would be needed in time anyways.  To move over 1 billion people to a first world style of life with freeways, rail, ports, airports and so forth takes a mega spend over time anyway.
But the consumer demand side is obviously the real long term solution.. for China, for us, for everyone.  And its far easier said than done to do, as the powerful people in the nations want to keep wages and benefits low.  I personally believe the Chinese leaders are serious and will bring up the wages.  Firstly industrialists in China don't have the control over the political leadership in China like they do in say Germany and Japan.  Secondly every time demand dips hard, China is going to veer into deflationary territory like we saw in 2009, so the pressure will always be there on the regime. 

The leaders said their next plan is to put in place the social welfare state, with unemployment insurance, higher pensions, free healthcare.. so that Chinese dont' have to save so much of their income in case of what-ifs.  50% of Chinese income is going to savings which is unsustainable the other way. 
On a deeper level the leadership has to create a broad national labour shortage.  So that firms are bidding against each other for workers.  The temporary infrastructure build did this temporarily, 40 million migrant workers who lost their jobs in factories moved over to these projects.

Right now China is in a good place, inflation is running at 5% yoy, so a strong sign that demand is actually outpacing supply nationally.  Even though there are areas of oversupply.   

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