Trillions, schmillions. What matters, of course, is the multiplier effect – how government money will trickle into jobs, wage packets and shops - especially now even the World Bank has cut it forecast for Chinese GDP growth next year, to 7.5 per cent. China earlier this month unveiled its $590bn package, of which perhaps one-quarter represents “new” spending. That focused on investment, specifically through infrastructure and housing. The latest measures, expected to be announced as part of the Central Economic Policy Conference beginning this week, may well turn out to be mere elaboration: providing more detail and perhaps some more dollars too. Nonetheless, early soundings offer some reason for cheer. Measures reportedly include wage increases in the state sector, tax breaks, bigger housing subsidies and improvements to the healthcare system. All would put more money in consumers' pockets.
Will consumers play ball and actually spend it? So far, Chinese consumers have responded to job losses and slower economic growth like everyone else, saving more (although that is partly a symptom of a horrid stock market) and cutting back on big-ticket purchases. Extra cash could partially offset this – Chinese households have little debt and, on average, already save 16 per cent of disposable income. But the idea of Chinese mounting a mega spending spree, buying Japanese flat screen TVs and American iPods, still looks far-fetched. Real urban income growth, having grown at an annual clip of more than 9 per cent for seven years, is now running at 7.5 per cent; the rate of growth in rural income is also decelerating. It will take time as well as money to swing domestic consumption's share of GDP much past the current 30 per cent.