To a certain degree, change is already underway. In real terms, Chinese spending has picked up and is growing annually at around 10%. Even before Hu’s speech, the Chinese government was already attempting to facilitate this process, spending more on social projects to help build social welfare systems. These safety nets are desperately needed. Most Chinese don’t have health insurance, pensions, or unemployment benefits, and the lack of a social backstop has incentivized a savings rate that’s more than 50% of GDP, an unprecedented level for a major economy.
The government has launched several other programs as well. Schools in rural areas are getting checks from local governments; national pilot projects for pensions are being tested and rolled out in Beijing. Chinese Vice Premier Li Keqiang, the heir apparent for the premiership in 2012, is touring the Northern Chinese countryside this week, calling for local governments to build low-income housing and asking local hospitals to provide better services to low-income families.
In order to move the process forward, China now needs to undertake the largest structural economic shift the country has seen since it liberalized its markets in the
1970s. The economy, which remains hugely dependent on heavy industry, needs to move away from this focus and toward finance or service sectors jobs and small
businesses.
“This may prove to be the case, but the speed at which this shift occurs will have very
much to do with how quickly China can morph into a more balanced economy with developed domestic consumer markets. Until that happens, the country will forever be exposed to economic fluctuations in the West — and as we have seen over the past few years, these fluctuations can be quite extreme.”Commented by Edward Lehman.