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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (87834)	3/9/2012 7:40:19 AM
From: KyrosL	Read Replies (2) \| Respond to of 218257

It's tough rebalancing China towards domestic consumption when most of the saved income belongs to the rich, who have a much smaller propensity to consume. The solution seems to be tax the rich heavily and redistribute to the poor. Is that possible when most of the rich are the governing "communist" elite? A Modest Proposal for China: Eat the Rich By TOM ORLIK It's not just inadequate consumption by the 99% that's the problem for China's unbalanced economy. It's the 1% hoarding their shadowy gains. The conventional wisdom is that low household income is the cause of China's woes. If only households had a bit more cash in their pockets and a higher willingness to spend, domestic consumption would take off and investment and exports could take a well-earned break, goes the thinking. That analysis is based on official numbers that suggest urban households are poor and income is relatively evenly distributed. It might be only half correct. Research by Wang Xiaolu at the China Reform Foundation—a policy think tank—confirms that the average household is poor, but also suggests that rich households enjoy massive hidden income. If that's right, it changes the analysis of China's economic imbalances, and the prescriptions for what to do about them. The standard policy suggestion for increasing China's consumption is to raise household income and improve social services. Incremental reforms in these areas were the focus of Premier Wen Jiabao's report to the National People's Congress this week. But according to Mr. Wang's numbers, the bottom 40% of China's urban population accounts for just 11.4% of total income. Even if income for low earners grows rapidly, and their behavior shifts significantly toward spending, the immediate impact on China's economic aggregates would be negligible. The top 20%, by contrast, are hoarding 60.3% of China's household income. Improving basic health-care and pension services will have no impact on their spending behavior. If Mr. Wen really wants to get some rebalancing bang for his policy buck, that means targeting the haves, as well as helping the have-nots. Agence France-Presse/Getty Images A cleaner and a Ferrari facing off in a luxury-car showroom in Beijing last month. There are some easy moves. Lowering the tax on luxury products would encourage China's wealthy to spend more in the mainland rather than jetting off to Louis Vuitton stores in Hong Kong and Paris. But the fundamental problem is that the propensity to consume among China's haves is inherently lower than that of the have-nots. If you are pulling in a few thousand yuan a year, even the most frugal lifestyle will leave you precious little left to stuff under the mattress. If you are pulling in millions, even a monthly consumer binge leaves plenty to plow into savings. That means the best way to raise consumption is to reduce the wealth gap. Policies that target corruption—a major source of the hidden income that Mr. Wang identifies—and a shift to a more-progressive tax base should be high on the list of priorities. Jonathan Swift's 18th-century prescription for fighting poverty involved eating the poor. Mr. Wen might find that rebalancing China's economy requires taking a bite out of the rich.