Correction to This Article
The article about China's role in the global economy incorrectly described a Morgan Stanley report on Chinese consumer spending. The report did not say that Chinese consumer spending will exceed U.S. consumer spending by 2018. It said that between now and 2018, Chinese consumers are likely to add more to global consumption than U.S. consumers, and that by 2018, Chinese consumers will be spending 40 percent as much as U.S. consumers, up from 16 percent in 2008.

Can China Lead a Recovery?

A huge screen at a mall in Beijing shows ceremonies commemorating 60 years of Communist rule. The International Monetary Fund predicts 8.5 percent growth in China this year.
A huge screen at a mall in Beijing shows ceremonies commemorating 60 years of Communist rule. The International Monetary Fund predicts 8.5 percent growth in China this year. (By Andy Wong -- Associated Press)
By Steven Mufson
Washington Post Staff Writer
Tuesday, October 6, 2009

BEIJING -- Chen Zizheng wheeled his shopping cart down one of the aisles at the Carrefour store near his house and paused in front of the bottles of Remy Martin, Johnnie Walker and Hennessy, each selling for an amount about equal to the annual salary he earned when he was a young government employee.

But those days were about 30 years ago, around the time Deng Xiaoping launched China on a path of economic reform and opening up. Now China's thriving economy has made it possible for people like Chen, a 67-year-old semi-retired aerospace industry official, to plop down 1,168 yuan, or $170, for a bottle of liquor at a branch of a French "hypermarket" chain.

"It's not that expensive for ordinary Chinese people now," he said, adding that he planned to serve Johnnie Walker Green Label to guests he was expecting to share moon cakes with during last weekend's mid-autumn festival.

"As Chinese society has developed and opened up, people have a better appreciation of imported liquor," said Chen, who used to buy the traditional Chinese stiff drink known as maotai. "When you choose a gift, other people will look at it and if it is brand stuff they will feel respected because you chose it for them."

One year after the global economy went into a tailspin, many economists are wondering whether Chinese consumers, once a thrifty lot, will lead the world out of the recession. Last week, the International Monetary Fund said China would do just that, thanks in part to the government's $600 billion stimulus package and a flood of bank lending. The IMF increased its forecast of Chinese growth to 8.5 percent in 2009 while lowering its forecast for the U.S. economy, which it said would shrink 2.7 percent.

Replacing U.S. Consumers

In the past, yanking the world economy out of the doldrums has been the job of American consumers, who have accounted for about two-thirds of U.S. gross domestic product and who for years bought enough imports to keep factories running from southern China to northern Mexico to central Europe. But as debt-laden American consumers tighten their belts, some officials hope that Chinese consumers will loosen theirs.

As a result of the crisis, the U.S. household savings rate has increased to 5 percent from 0 percent, IMF Managing Director Dominique Strauss-Kahn said in a recent interview. While that may be good for global trade and financial balances, he said, it raises the question of which consumers will fill the void and become the new engine of global economic growth. If the most likely candidates are China, India and Brazil, it remains to be seen what kinds of products those consumers will demand, and from whom.

Part of the answer will come this week, often known as retailers' "golden week," when Chinese consumers -- many of then flush with bonuses -- go shopping to celebrate the holiday marking the 1949 Communist revolution. One day after the performers, schoolchildren, and tanks and troops evacuated Tiananmen Square after the Oct. 1 pageant, Beijing residents stormed the city's stores.

In China, consumer spending accounts for only 36 percent of GDP. The country has the world's third-largest economy, but it ranks only fifth in consumption, according to a recent McKinsey Quarterly article, which called spending "anemic by almost any measure." Its savings and investment rates are higher than those of any of the frugal "Asian tiger" countries.

So the government has been stoking the economy not only with big infrastructure projects, but also with incentives for things like new television sets. Mortgages are cheap and plentiful. Morgan Stanley estimated that, using conservative projections, China's total consumer spending will surpass that of the United States by 2018.

In the first seven months of the year, vehicles sold in China reached 12.3 million on an annualized basis, exceeding the United States for the first time ever, according to Morgan Stanley.

On Friday night, at the New World Shopping Center, some people were ice-skating on the ground floor while others shopped for cosmetics one level up. Upstairs, near a floor-to-ceiling photo of Kobe Bryant in a sweatshirt, 23-year-old Xiong Ying was checking out Nike sneakers.

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