Global Crisis/Innovation Blog

China’s Social Engineering 2011-15: The Mind Boggles

By Shlomo Maital

  

Affordable Housing in China

 

China’s 11th National People’s Congress has just ended, after approving a new Five Year Plan (2011-15).   According to Alan Wheatley, a Reuters correspondent, *  the  Plan will  build 10 million affordable homes this year, 36 million total over the entire period.  This, Wheatley notes, is enough to house the whole population of France, Australia and Canada:  Over 100 million people! 

    “It will spark the greatest consumption story in modern history”,  says Stephen Roach, chair, Morgan Stanley Asia. 

    What is China up to?

    China realizes that its three-decade-old growth model, built on making stuff and selling it mainly to America (about a $25 b. export surplus every month), is running out of steam.  The solution is easy to define, but very hard to implement:  Shift its growth engine away from exports and related capital investment, toward domestic consumption. 

   But how do you get the high-saving Chinese culture to change its ways and spend like Americans rather than save like Chinese?  

   Read Pearl buck’s wonderful 1931 best-selling novel The Good Earth, about pre-1949 Chinese peasants and their struggle to save to acquire land.  You will understand how deeply rooted is the Chinese need to own a home and to save in order to buy one (rather than borrow to buy one, American style, and then struggle to pay off the debt).  

    China’s government will fight the housing and real estate bubble and at the same time re-engineer Chinese society and culture by providing affordable housing – apartments that middle-class workers can afford, so that they can divert more of their disposable income toward spending. 

    Will it work?  Much depends on China’s  success. If we believe the world needs rebalancing, with Asia doing more spending and the West doing more saving, China holds the key.  Don’t count on America for any social engineering – the message “lower your standard of living, stop spending, start saving” is the last thing U.S. politicians will campaign on.  Many people mock China’s Five Year Plans as outmoded socialist planning.  In this case, by 2015, China may have the last laugh.

 * Alan Wheatley. “China’s plan for creating consumers”, Global New York Times, March 15, 2011, p. 22