China has a huge problem: Chinese people aren’t spending enough money. China today has the lowest consumption rate of any major economy in the world – in fact, its consumption rate is lower than any major economy in the past 100 years.
Consumption makes up just about 56% of China’s GDP. In most economies, it’s 70% or more. To put this in perspective, China’s consumption as a share of GDP (gross domestic product) is about 10 percentage points lower that Japan’s was in the 1990s, at the worst point in its economic stagnation.
Why does low consumption matter? Because it’s a flashing warning sign that China’s economic model is fundamentally broken. That’s why GDP growth is coming to a screeching halt, dropping from highs of 10% or more in the early 2000s to under 5% today. It’s also why China’s debt is growing to alarming levels.
And this is not just a problem for China. Low consumption in China means its people aren’t buying all that much – but China can’t scale back production without mass layoffs. So what does China do with all the extra stuff? It exports more and more abroad, at lower and lower prices.
The technical term for that is “dumping” – and countries from Europe to Asia are starting to complain about it. China’s huge excess production is killing manufacturing industries around the world.