People these days often hear about China's economic growth and its enormous impact on the global economy. Yes, China contributed 19% of the world's economic growth in 2010, and that figure is expected to increase to 24% this year. Western companies have invested in China to stay competitive in one of the world's fastest-growing market. This Tuesday, Boeing announced that it officially opened a service center in Beijing. China's travel is expected to grow annually at 7.6% over the next 20 years, and Boeing, which already has 800 of its airplane units in Chinese airlines, hopes to maintain the company's majority share of the market of commercial airlines in China.
But is this really indicative of China getting richer? A recent New York Times article argues that while its economy experiences rapid growth, China sees its households struggling to keep up, as those making more than the average usually save most of their earnings. While the US saves roughly 5% of the disposable income, that figure approaches 40% in China. Various factors, from depressed wages and soaring home prices, impel the Chinese to save. However, the interest rate on saving accounts are artificially low, not able to keep up with the rising inflation rate. As a result, consumption levels are low. Those who benefit from the savings are state institutions, fueling the rise of real-estate developers and government spending on railroad. As for the commoners, they have little choices. Many wish to avoid investing in the volatile stock market, and laws restrict the ability to invest overseas.
The most convenient outlet for many Chinese then, became the real estate market. Compared to the same period a year ago, Chinese investment in real estate was up 32.9% during the first half the year. Real estate prices have overall tripled in the past five years. Many have been concerned about the effects of a housing bubble burst. This is a legitimate concern for the United States, as China's growth is crucial for the multinational companies investing there; United States sold $92 billion in goods and services to China last year. But the focus still hasn't been on domestic consumption. So far, much attention has been focused on cheap land and capital for heavy investing. The soundness of the Chinese economy will need to depend on how the households can spend, not just the state corporations.
So is China getting richer? It depends on from what perspective one looks at. Is the GDP growing? Yes. Are foreign investments increasing? Yes. But are the average household better off? As ambiguous as the question may sound, the answer may just be "not exactly."
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