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China’s leaders, whose country suffered a stock market crash during the summer, are seeking to increase national consumer spending to stabilize its faltering economy. Prior to the crash, the economy had been based on savings, exporting goods, and manufacturing growth instead of providing goods and services to its own people.
Now that is expected to change.
President Xi Jinping has assumed the position as the economy’s chief designer, a role typically filled by the prime minister. The head of state “has pledged sweeping market-oriented reforms to overhaul the Chinese economy for long-term growth,” The New York Times reported, to make “the country’s currency, the renminbi, a strong competitor to the dollar on world markets.”
The president is working to create a more substantial middle class, which would increase internal spending. By removing ultra-wealthy monopolies and encouraging the migration of workers from rural to urban jobs, a rising middle class would increase the demand for goods and services.
“That involves redirecting hundreds of millions of people and trillions of dollars of capital,” a Reuters opinion piece reported. “Nothing like it has ever been attempted.”
The transition has not gone smoothly: “Profit at large Chinese industrials shrank 8.8 percent in August, compared with a year earlier,” Reuters reported. “Rail freight contracted by 15 percent. The real estate investment that has underpinned global prices of commodities like copper and iron shrank by 1 percent, compared with a decade-long average growth rate of 21 percent.”
Financial observers are skeptical about the communist government’s ability to shift its people’s focus—which traditionally emphasizes social order, productivity and savings—toward mass consumerism. Currently, the majority of China’s GDP is put toward savings and investment, and the nation spends only 36 percent of it. By comparison, America, which has a consumer-based economy, spends nearly 70 percent.
Some economists consider these short-term growing pains. They point to America’s transition from an industrial economy to a middle-class consumer economy after the Great Depression as an example of why China should continue moving forward. The nation’s middle class is already larger than that of the United States, with 109 million Chinese citizens earning between $50,000 and $500,000. In addition, since 2000, Chinese wealth per adult has quadrupled.
Several nations, including the United Kingdom, are seeking to help China transform its economy.
Michael Hockx, director of the SOAS China Institute in London, said, “Chinese businesses are very eager to invest in other countries and some of the best export products that China has to offer are to do with infrastructure, high-speed trains, energy…and these are exactly the things that the UK needs.”
The UK’s Chancellor of the Exchequer, George Osborne, said he intends to make China Britain’s second-biggest export market by 2025. BBC reported: “Mr Osborne insists that this is a golden moment, where the interests of the UK and China align. China’s maturing economy can absorb more of the services which are British export strengths.
“And UK infrastructure can soak up Chinese investment funds looking for a reliable return. Win-win for both sides, according to the chancellor.”
Though investing in a communist regime is a questionable move according to some British economists, the UK struck over 30 billion pounds of trade and investment deals with China during President Xi’s visit to England in October. This included an 18 billion pound investment in Britain’s nuclear power plants.
“China has overtaken the United States as the world’s leading trade power,” Sir John Peace, Chairman of Standard Chartered Bank, which offers banking services worldwide, said in an editorial published in The Telegraph. “As a measure, 123 countries in the world have China as their leading trading partner, while the US can count only 64. Connecting China’s less developed West to developed Europe as well as China’s more affluent east to the fast-growing North Asia economic region presents exciting economic opportunities.”