Thrifty Chinese resist enticements to spend

Reporting from Beijing —  To re-balance their economies, Americans need to save more and the Chinese must loosen their wallets.

But judging from homemaker Wang Fang’s grocery cart leading up to the biggest holiday of the year here it’s going to take some doing to persuade consumers here to shop til they drop.

Her annual splurge, timed to Sunday’s Chinese New Year festivities, included a sack of rice, a jug of cooking oil and a bag of beef jerky. Wang’s lone personal indulgence: a $40 foot-washing basin she bought using a gift card from her husband’s state-owned gas company.

“Chinese people like to buy practical gifts,” said Wang, 49. “So it’s mainly food and drinks. We’re not going to buy junk that lasts one or two years.”

Debt-strapped Americans would do well to mimic Wang’s self-restraint. But in macroeconomic terms Chinese frugality is not a virtue. China’s economy is overly dependent on foreigners to buy its low-cost exports, a weakness that was exposed during the recent global downturn. The government is now trying to encourage its own citizens to spend, with the goal of building reliable domestic demand for Chinese products.

“We must . . . transform the current development model that is excessively reliant on investment and exports,” Li Keqiang, the vice premier widely expected to be the next prime minister, said last month at the World Economic Forum at Davos. “We will focus on boosting domestic demand.”

It won’t be easy.

China’s rapid rise might be the envy of nations across the globe. Yet for all the talk of its economic miracle, Chinese consumers are taking home a shrinking share of the pie. In the 1990s, household income accounted for 72% of the country’s gross domestic product. By 2007 it had fallen to 55%, according to a study on Chinese consumption by consulting firm McKinsey & Co.

That’s because Beijing has geared China’s economy toward production rather than consumption. It’s a formula that has provided millions of workers with employment but no quick path to the middle class.

Driving the disparity, experts said, is China’s decision to subsidize manufacturing and exports at almost any cost to keep its factories humming. The government has showered its manufacturers with low-interest loans, export subsidies and other incentives to give them an edge over foreign competitors. Beijing has also kept its currency, the yuan, artificially low so that its goods remain cheap abroad.

That has been a boon for Chinese factory owners and other well-connected elites. The nation boasted 42 billionaires on Forbes’ most recent list of global tycoons.

But wages for most Chinese workers have grown slowly, while their tax burden has risen to help finance all those business subsidies. Meanwhile, a weak currency has fueled inflation and makes imports more expensive for consumers at home.

The McKinsey study said the average Chinese worker has to put in seven hours on the job to earn enough to purchase the same amount of goods or services that an American worker could buy with one hour’s pay.

Yu Yaocai, a 28-year-old junior high school teacher in Beijing, said he set a $300 budget for the holidays, about $40 less than his monthly pay. He said he would put the expenses on his credit card but would pay it off promptly when the bill arrived.

“I only buy something when I need to buy something,” Yu said.

To be sure, living standards are rising here. China surpassed the U.S. last year in auto sales, and it’s the world’s No. 1 cellphone market. Still, more than half of China’s 1.3 billion people remain in the countryside, where per capita income in 2009 was $758. City dwellers averaged earnings of $2,773 last year, about 15 times less than what the typical American earned.

Persuading Chinese consumers to spend considerably more of their disposable income will require a massive cultural shift. The Chinese savings rate is more than five times higher than that of the U.S. That’s largely because citizens here can’t count on the government to supply them with adequate education, healthcare or retirement benefits.

Hu Yuping, a homemaker from a rural suburb outside Beijing, said she’s trained her family to survive on about $1 a day. It’s the only way they can afford her son’s college tuition, which costs $1,000 a semester.

Her husband had to give up a job as a taxi driver because of diabetes. Their savings helped pay his medical bills. To make ends meet, he’s taken handyman assignments in his village.

“We don’t buy anything big,” said Hu, whose deep crow’s-feet and graying hair make her look far older than her 46 years. “The last time we did was five years ago when we bought a television.”

The central government has launched plans to shore up healthcare and pension plans, but the efforts are still not enough, experts said.

Chinese people “still do not feel secure about their future,” said Zhao Ping, an economist with the Ministry of Commerce, who researches consumer spending. “Social security is not well-developed. People in the rural areas have to save money for old age; children [providing for their parents in their old age is] the traditional way, but people can’t rely on that because of the one-child policy. The government is trying to improve the social security system, healthcare and retirement programs in rural areas. Only when the system is established will people have the confidence to spend more.”

A host of multinational firms, including Walmart, General Motors, Procter & Gamble and Apple, are betting on it.

On a recent afternoon at one of the 156 so-called “hypermarkets” in China run by the French retailing chain Carrefour, hordes of shoppers elbowed their way through the aisles to stock up for the New Year’s celebrations. Many said it was the most expensive occasion of year for them. Family meals had to be prepared and gifts had to be given to in-laws, colleagues and bosses.

The crowds weren’t so thick in the electronics department, but traffic was jammed in the food aisles, where special red gift boxes of Peking duck, mixed nuts and rice wine were ready to be scooped-up by passersby.

“It’s nutritious and the packaging is easy to hold,” said He Liping, explaining why she bought her aunt a seasonally decorated box of organic eggs.

While thrift remains the watchword, some unapologetic consumers can be found in the upscale shopping districts that are springing up in the big cities.

Steven Chen, a 23-year-old musician, said his fashion icon was hip-hop star Kanye West. The Beijing native proudly described his ensemble while standing outside a designer T-shirt store: a Victorinox beanie, a Billionaire Boys Club jacket over a Uniqlo hoodie, Buffalo jeans and teal-colored Nike sneakers.

“If I have the money, I’ll buy it,” Chen said, describing his shopping addiction. “It’s my own money so my parents can’t complain. Though they keep telling me to save and buy a house.”

david.pierson@latimes.com

barbara.demick @latimes.com

Nicole Liu and Tommy Yang in the Times’ Beijing bureau contributed to this report.