Opinion

Traveling the road to an economy of consumption

By Tim Dunne (China Daily)
Updated: 2010-08-02 11:21

Increasing wages

While limitations on bank lending are being put into place, new labor policies have been announced to increase the minimum wage for employees, offer more workforce benefits and provide employment protection to long-term employees - those with tenure of 10 years or more.

While these policies appear to be in place to offer more safety to workers, they may have an even greater practical application: driving consumer consumption.

With more money in their pockets, and with some assurances that they will not lose their jobs, these policies could facilitate more buying, allowing China to transition from an export and stimulus-drive economy, to a consumption-driven economy.

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While higher wages and guarantees would most likely cut into company profits - which could negatively affect exports - they could also potentially create new buyers for a company's products.

While it is not clear whether these labor policies will help create an economy that is less dependent on exports - compared to other countries, Chinese consumers are quintessential savers, often reluctant to part with their money - they may be just what China needs at this time to create an internally driven economy.

With more time on their hands, and more money in their pockets, we will find out if Chinese consumers are willing to provide the foundation for a self-sustaining economy.

The author is a senior analyst at JD Power and Associates