Adam Wolfe in Barron’s: China’s Recovery Is on Hold. Shoppers Aren’t Spending
12th JUL. 2023
Tanner Brown of Barron’s, in conversation with ASR’s Adam Wolfe, on China, noted that:
“Investors often don’t realize that China’s long-running inability to kickstart consumption does not appear to be due to a lack of disposable income.” Adam observed that: “Labor compensation as a share of GDP is fairly normal in China.”
Adam continued: “After taxes, wages actually account for an unusually high share of GDP in China. The main culprit is China’s tax structure, which drives excess household savings….”
“China hardly taxes income, but its VAT take is fairly normal, which is effectively a tax on consumption. Plus, China has numerous mandatory savings policies such as funds for housing, healthcare, and pensions.
This is essentially a regressive taxation system that poorly redistributes income, keeping the lion’s share of money in higher net-worth households, which save disproportionately more than lower-income homes.”
He concluded: “Consumption is central to the government’s plan to boost domestic demand. But the policies it has proposed will likely have little impact on household saving behaviour.”