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. (By Andy Wong -- Associated Press)

"I'm just looking for discounts," said Xiong, who works on the Beijing metro system. She said she was looking to spend $30 to $60, or 10 to 20 percent of her monthly salary. She said her biggest expense is eating out with friends; she lives with her mother. "I give half my month salary to my mother," she said. "I figure that's my savings plan."

The Role of Optimism

After years of socking away their meager earnings in banks, Chinese consumers are also starting to spend on services, a category where they lag behind U.S. consumers. According to marketing research by Ogilvy & Mather, 70 percent of Chinese children attend at least one extracurricular program, mostly English classes. Ten million are learning to play violin. One million Chinese people a year get cosmetic surgery.

In what once aspired to be a classless society, status has become important. Even though scores of millions of Chinese toil for low wages in factories, Chinese consumers buy 12 percent of the luxury goods sold worldwide, and the number of people able to afford such items is expected to quadruple in two years, to 160 million. Sixty percent of Chinese say luxury goods are a sign of success and social status, according to Ogilvy.

Spending isn't limited to coastal areas and big cities. Ogilvy notes that two-thirds of retails sales are outside the 24 largest cities.

There is no consumer confidence index, but many analysts say the Chinese remain confident about the future. "One of the characteristics of Chinese consumers is that they are very optimistic compared to their counterparts in Europe or the U.S.," said Mickey Chak, chief planning officer at Ogilvy & Mather's Beijing office. "They feel that their spending power and standard of living is only going to get better and better. It is that optimism that makes them spend even during a tough economic situation."

At Carrefour, Chen said he became a little less frugal around 1998, about 20 years after Deng opened up the economy. Although he didn't elaborate, analysts say that was long enough for most Chinese to conclude that the periodic spasms of leftist political campaigns that marked China's post-revolution history had come to an end.

"At that point, I had the feeling that I could use money at my ease," Chen said.

Chen said his generation remains relatively cautious about spending and usually avoids borrowing. In 2000, when Chen bought a second home, he drew down his savings. By comparison, his 30-year-old daughter went to the bank and borrowed money to buy a car and an apartment.

Holding Them Back

It remains unclear whether the Chinese have abandoned their traditional caution. "Over the past decade or so, the growth of China's household consumption has been outpaced by fixed investment growth and exports, and consumption as a percentage of GDP is low and has been on the decline," said Morgan Stanley analysts Qing Wang and Steven Zhang in a report last month.

"The Chinese consumer now has the wallet to sustainably increase consumption spending," said Mohamed El-Erian, chief executive of the bond-fund giant Pimco. "The question is the will. And the will is still being held back by a host of institutional and cultural issues."

Those issues include the lack of a secure health and pension system, which makes many Chinese workers more likely to lay money aside for old age.

Moreover, few people have credit cards. The number of cards skyrocketed from 3 million in 2003 to 128 million by the end of 2008. But Chak says that represents less than 40 percent of urban dwellers and only 10 percent of rural residents. And many cardholders seldom use them, he said.

"Bottom line," El-Erian said: "Chinese consumption will increase, but, from a global perspective, it is not yet in a position to immediately and fully offset the decline in U.S. consumption."

At an Ikea store in northwest Beijing, it wasn't for want of trying.

Zhang Yang, 27, an official at a railway company, was checking out the fixtures in a kitchen while his wife scribbled down the items on a list for checkout. The couple had just bought a $213,000 apartment, borrowing to cover 30 percent and drawing on savings to pay for the rest. Because they like the way it's decorated, they were looking at relatively small items. The biggest purchase of the day: a $219 teak television cabinet.

"It's simple yet functional," Zhang said.

Nearby, Zhao Mingxia, a 26-year-old nurse, was perusing model kitchens for ideas for a new $165,000 apartment she and her 28-year-old husband bought in Beijing's Haidian district, an area popular among high-tech entrepreneurs and people connected to major universities nearby. She took note of how a microwave was sitting on a shelf in one of the teal-colored model kitchens, saying doing that would save counter space.

"We don't want what's in the kitchen now," said Zhao, who grew up in a rural part of Shandong province. "We're redecorating the whole house."