A woman walks past an advertisement encouraging spending with credit cards in Shanghai. (Qilai Shen/Bloomberg)

For three decades, China
has enjoyed astronomical growth through massive government investment and by becoming the world’s exporting powerhouse. But those days are coming to an end, and the government is looking to Chinese consumers to drive future expansion.

But a tradition of thrift and a historic mistrust of officialdom is thwarting efforts to persuade the Chinese to spend more, experts say. And with China’s economy in the midst of a major slowdown, the government has not yet moved away from restrictive policies that also discourage spending.

On Thursday, China made its latest move to combat the slowdown, cutting key interest rates — the second rate cut in a month.

Chinese remain among the world’s stingiest consumers. Household consumption in China accounted for a paltry 35 percent of the overall economy in 2010, compared with 71 percent for Americans and 57 percent for Europeans.

Chinese also save far more than others, with an average household savings rate of 38 percent in 2010, compared with just 3.9 percent for Americans and 2.8 percent for Japanese, according to figures compiled by Bloomberg Businessweek magazine, using statistics from the World Bank and the Organization for Economic Cooperation and Development, along with other data.

And while younger Chinese have begun to buy more, save less and take advantage of credit more often than their parents, the old habits appear to be eroding slowly and may change only with a new generation.

“I don’t see the need to consume that much,” said Patrick Zhou, 36, a married Shanghai lawyer with a 2½-year-old son. Zhou said he and his wife each save about half their income every month, which still leaves them with enough money to eat out regularly and take a yearly vacation. “We have our house. I have my car. We travel every year,” he said.

The high rate of savings contrasts with the increasingly visible consumerism in cities such as Beijing and Shanghai, which are filled with Ferraris, shopping malls and luxury boutiques.

Precedent and practicality

Chinese older than 50 cling to more conservative spending habits than those in their 30s and 40s, said Shaun Rein, managing director of the Shanghai-based China Market Research Group and author of a new book called “The End of Cheap China.’’

But the exception to the savings-first rule appears to be the 20-something generation, veritable spendthrifts compared with older Chinese, with “an effective savings rate of zero,” Rein said. These Chinese were born after their country’s opening to the world in 1978, grew up with relative affluence and want the latest iPad and iPhone.

The reasons Chinese save more and spend less are complex, stemming in part from tradition and in part from government policies that discourage consumption. People older than 50, who save more than 60 percent of their income, remember a period of economic hardship and political chaos: the “bitter years” of the Great Famine, from 1958 to 1961, and the violence of the Cultural Revolution, from 1966 to 1976.

Some younger Chinese have carried on that tradition of thrift. Tony Ren, a 30-year-old married Shanghai accountant, saves about half his $2,600 monthly salary but says he doesn’t feel he is wanting for anything. “Maybe I’m too busy to have a lot of time spending money,” he said.

But there are other very practical reasons that people in China save. Buying a home typically requires a down payment of at least 25 percent and more often 30 percent, an astronomical sum of money for many. Also, many here have their first, and often only, child in their 30s, which is when they begin saving for future education expenses.

Government shifting focus

Getting people to spend more has become the government’s latest mantra. “Expanding domestic demand, particularly consumer demand . . . is essential to ensuring China’s long-term, steady and robust economic development,” Premier Wen Jiabao told the legislature in his annual work report in March. “We will improve policies that encourage consumption.”

But changing the policies that discourage private consumption could prove difficult, requiring China’s Communist Party rulers to adopt a host of reform measures they have long resisted, such as freeing interest rates to rise and letting the Chinese currency float freely.

The policies introduced so far have been largely symbolic, according to experts. The policies include subsidies to allow people to purchase more energy-efficient home appliances such as air conditioners and flat-screen televisions. There also have been proposals for cutting import taxes on some consumer goods. A pilot program in Shanghai replaced a business tax with a value-added tax.

Chinese consumers who were interviewed agreed that the government could take several more decisive steps that would have a dramatic and direct impact on spending and savings habits. For example, credit could be made more available, and interest rates could be allowed to rise to reflect market rates.

Michael Pettis, a finance professor at Peking University and a senior associate at the Carnegie Endowment for International Peace, said the real problem is not that Chinese consumers spend so little, but that they have so little to spend. Household income accounts for just 50 percent of China’s gross domestic product, Pettis said, compared with the United States, where it accounts for 80 percent. That means, essentially, that the government’s share of the economy is far too large — or, as some Chinese say, the country is rich but the people are poor.

So while domestic consumption is growing, it accounts for only a small share of the overall economy because the state sector still looms so large.

“I think the cultural explanations of thrift miss the point,” Pettis said. “They’re spending too little because they own such a small share of GDP.”

Wang Juan in Shanghai and Liu Liu in Beijing contributed to this report.