China’s Economic “Boost”

Recently, the Chinese government released a plan to “boost” the Chinese money supply and stimulate the economy.

Unlike Americans, people in China actually save money. Most Chinese immediately deposit a large portion of their paycheck into the bank after they get paid.  This saving goes toward education, retirement, emergencies (when I lived there 3 years ago the insurance industry was highly underdeveloped), and simply a general feeling of security.

In fact, since ancient times, Chinese common wisdom has said the wisest way to get rich is by accumulating money (notice, this doesn’t say anything about investment, a very different thing).

Additionally, the Chinese credit card industry has had a hard time in the past.  Aversion to debt runs so deeply, that even Chinese students living in the US pay off their loans with surprising speed. A Chinese friend in the credit card industry told me “If all Americans used their credit cards the way the Chinese do, we couldn’t turn a profit!”

So, could the boost plan be effective? Maybe, but there are large cultural barriers working against this stimulus.

As written in my last blog post, there are lots of things that need to be done, like providing a better environment for private firms to develop.  Additionally, the government could privatize many state-owned assets, boosting the market while making it more open and transparent.

The boost plan is a good start, but the Chinese economy needs a more fundamental reform.