Since COVID, the Chinese economy has been on a wobbly recovery path. A lot of stale conventional wisdom has been aired again for a fresh lease on life. One key such argument is that China has a massive underconsumption issue.

While there is some truth to the relative low level consumption vs. the US, it is hardly the whole picture. The burst of the housing bubble indeed has a knock-on wealth effect that negatively impacts consumers. Cultural factors like high savings rate (as much as 45% of income) also inhibits consumption.

Does this mean Chinese consumers are underspending? Do they suffer from enjoying less products and services compared with high spending countries like the US?

Not necessarily so. Anyone who has lived in China will tell you things (physical products) are just a lot cheaper than the US from cars to electronics to furniture to clothing and food. Services are even cheaper such as dining out, telecom services, public transport, taxi fares, food delivery, haircut, massage, etc etc.

Very importantly, Chinese consumers spend far less on big ticket service items – rental (China home ownership is over 90% compared with 60% in the US), healthcare (largely free or heavily subsidized), and education (free public education all the way through university and graduate school).

It’s not just Chinese consumers spend less to get same, they actually consumer quite a lot given the nominal per capita GDP is less than 20% of US:

• China has the largest global retail goods sales, 20% larger than US, at dollar value without adjusting for purchasing power
• China auto sales was 30 million units in 2023 compared with 15 million in the US
• 13 million residential units were sold in China in 2023 (after 3 years’ negative growth) compared with 4 million sold in the US
• China accounts for 30% global luxury goods sales, even in economic downturn, 2X of US
• China is the largest outbound tourist country with 200 million outbound trips made a year
• China leads the world in sales of mobile phones, LED TV, home electronics, sporting goods and a lot of other consumer goods by a wide margin
• China consumers 1/3 of electricity generated in the world, reaching 8000 terrawatt hours last year compared with 4000 terrawatt hours for the US
• China has surpassed the US in per capita daily calorie and protein intake
• Chinese life expectancy is 78.6 compared with 77.5 in the US, when 18% of US GDP is in the healthcare sector and 7% in China
• Chinese graduates over 5 million STEM college students a year verse 800,000 in the US
• Chinese total household debt is $11 trillion vs $17.8 trillion in the US
• Chinese total household savings is $2 trillion vs. $911 billion in the US
• According to the Federal Reserve, 40% Americans cannot cover with $400 unexpected expense. I don’t know any comparable number for the Chinese

Based on data, I think it’s safe to argue Chinese consumers don’t underspend compared with global average or even over-consumption countries like the US. They certainly have a bigger cushion in the form of savings and much less indebted.

All said, it is true there are problems with the Chinese economy such as high unemployment for college-educated youth. I think at least part of the reason is the Chinese economy is not producing enough high-paying service sector jobs to absorb such job seekers. In contrast, there are 30 million unfilled manufacturing jobs in the country. As a result, China has the world’s highest adoption of robotics – 50% of all robots sold in the world is in China.

The US does produce a lot more service industry jobs (80% GDP) vs. China (55%). There is clearly more bankers, lawyers, accountants, consultants, insurance agents, PR specialists, stock brokers, computer programmers, real estate agents, health workers in the US. As a result, the average American consumes a lot more services offered by these professions. China produces more (manufacturing GDP at 32% GDP) than US (10%). Therefore, Chinese consumers buy a lot and the country also exports a lot.

We’ll see how each country will find the right equilibrium in their economy and the outcome of their competition in trade, technology and military spaces. Meanwhile, let’s understand the world beyond hype and simple rhetoric that seem to pervail in the mainstream media.