China's struggles with a consumer society

NEW HAVEN, Connecticut — China's engineering prowess has been nothing short of extraordinary. From world-class infrastructure and eco-friendly cities to space systems and high-speed trains, China's impressive accumulation of state-of-the-art physical capital has played a dominant role in driving its economy. But China's physical engineering accomplishments on the supply side have not been transferable to social engineering efforts on the demand side, especially in stimulating consumer demand.

The disconnect arises out of the modern Chinese political system, which emphasizes stability and control. While this focus has enabled the country to become the world's "ultimate producer," it has not been successful in uncovering the DNA of the Chinese consumer. Social engineering through government diktat stands in sharp contrast to the incentive-based, free-wheeling, individualistic spirit that shapes human behavior and consumption patterns in the West. With the household consumption share of Chinese gross domestic product (GDP) remaining below 40 percent, compared to around 65 percent in advanced economies, China has little to show for its long-standing rhetoric on consumer-led rebalancing.

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