The latest research from the International Monetary Fund offers some encouraging news on Chinas push to lower its extraordinarily high national savings rate and move toward a more consumption-driven economy.
The new paper (http://www.imf.org/external/pubs/cat/longres.cfm?sk=23533.0) by IMF staffers Steven Barnett and Ray Brooks formerly of the funds office in Beijing offers statistical evidence that the increased government spending on healthcare in recent years does actually encourage Chinese households to consume more. Higher government health spending seems to reduce the need for precautionary saving and frees up households ability to spend on other goods and services, they write.
The government now is taking a variety of measures (http://online.wsj.com/article/SB126282687863718925.html) to try to boost consumer spending, not all of them welcomed by outside economists. The IMF paper supports a view long expressed by the fund and other international agencies: that rebuilding a social safety net is one of the best ways to encourage a higher level of Chinese consumer spending over the long term. The authors say the healthcare overhaul announced in early 2009 should help boost consumption as well as improve health.
Read more on the Real time China Report blog.