Snow advises to save less, spend more
By Neil King Jr., James T. Areddy (The Wall Street Journal)
Updated: 2005-10-14 11:45

China dropped the yuan's fix to the dollar and pushed its value up by just more than 2% in July. But since then, Beijing has said it will pursue any further loosening at its own pace, a point repeated yesterday by Finance Minister Jin Renqing. Mr. Jin will join Mr. Snow and other top U.S. officials Sunday for two days of joint economic talks in Beijing.

Treasury secretaries going back to the Reagan era have pursued a similar save-less-and-spend-more line with Japan. But in China's case, Mr. Snow jumped on the consumer wagon just in the past few months, largely at the urging of his new undersecretary for international affairs, Timothy Adams.

They have found plenty of support in Beijing, particularly with the head of the People's Bank of China, Zhou Xiaochuan. "In the major global economies the influence of domestic consumption on the trade balance is far greater than that of foreign exchange rate adjustments," Mr. Zhou recently told Caijing, a Chinese business magazine.

Andy Xie, Morgan Stanley & Co.'s chief regional economist based in Hong Kong, estimated recently that China's economy "is more than twice as dependent on trade and fixed investment as on average in the world." The gross value of China's exports and fixed asset investment, he figured, could reach 89% of the country's gross domestic product this year, compared with 60% in 2001.

China, meanwhile, has the highest savings rate -- at around 50% -- of any major economy. The reasons for that are many. China has no real pension system, or government-funded health care, and housing costs are soaring. "There is enormous precautionary savings," Mr. Adams says.

The question, then, is how to get more of China's 1.2 billion people to free up some of their savings and spend at home. China has had some success in encouraging consumerism. Car ownership was almost entirely reserved for companies and the government in the first few years after Buicks started rolling off the General Motors Corp. assembly line in Shanghai in 1999. Now, the U.S. auto maker says as much as 80% of the Buicks it sells are bought by individuals, while the rate is even higher for more moderately priced Chevrolets.

A home-ownership boom has supported a number of ancillary industries, encouraging an influx of companies like Home Depot Inc. and IKEA offering new products to consumers. Luxury goods makers, like France's LVMH Moet Hennessy Louis Vuitton SA, are fast expanding and report strong performance.