A New Perspective on Why China Should Catalyze Domestic Consumption

Monday, September 21, 2009 1:29
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Wei Gu writes an interesting commentary on the recent decision of the Obama adminstration to tax Chinese tire imports in her piece For Chinese exporters, the grass is greener abroad.

That it is just one more reason why the Chinese need to focus on building a domestic economy:

By imposing penalties in this case, President Obama has opened the door for a slew of similar complaints against Chinese goods. It will only be a matter of time before other countries, worried about where those displaced Chinese exports might end up, start to follow suit.

That’s why Chinese policy makers need to get more serious about stimulating domestic spending. It is time for Beijing to revamp a system built over the past three decades that explicitly and implicitly favours exports and to encourage manufacturers to prioritise selling to the domestic market .

It is an interesting analysis of the situation, and one of the more well thought out pieces, as it gets beyond the standard steps of what needs to be done in order to catalyze domestic consumers:

Longer term Beijing needs to foster the development of a healthy credit culture for suppliers so they can get paid on time, and improve China’s transportation infrastructure in order to reduce the cost of moving goods around the country , and most importantly, break down local protectionism that discriminates against suppliers from other provinces. It may seem odd but China still needs to create a single internal market.

Despite all the talk about Chinese consumers unwilling to spend because of a lack of a social safety net, one important reason that they don’t buy much at home is because prices are often too high.

Analysis one rarely finds, and a commentary well worth the read.

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