One of the world’s greatest economic success story is China. The success of China has been to uplift millions of people from essentially subsistent farming or they had the ability to grow food to meet their needs most of the time, but little money to spend towards the middle income levels. When China became the manufacturing center of the world, the country had a lack of infrastructure, which is why the best trains and highways in the world are in China. The manufacturing needed workers and people left farms or rural areas to work in the factories which allowed them to cover the basic needs. As people moved to manufacturing the next generation started working in services and the Chinese economy has evolved to greater services and all the institutions behind that. The institutions include universities and colleges which will continue to evolve the economy.

In an article by Vivian Wang of the New York Times News Service, when President Trump imposed sky high tariffs on China, the government believed domestic spending will help in get through the breakdown of trade. That is easier said that done.

Domestic consumption in China was anemic even before the tariffs. The post pandemic economic recovery has been lackluster, factories have been shuttered, and youth unemployment is high. Home prices, the bedrock of many middle-class Chinese families’ wealth have plummeted.

The problem is for most of the workers, it is first generation wealth, and it takes a couple generations before the middle-income group feels they can afford to spend during all economic cycles. In the meantime, people’s spending habits are changing, they are making targeted, cost-effective choices.

The government has used incentives such as trading in for new cars and electronics. It did lift sales.

During a long holiday weekend for China’s Tomb Sweeping Festival, travelers made 126 million domestic trips and spent $8 billion on food and hospitality, according to official data. This was up 6% from the previous year.

The bigger problem for Chinese consumption is not rising prices, but the fact that people are not spending to begin with. Many Chinese companies have been entangled in damaging price wars as Chinese consumers demand lower prices.

One of the reasons why Chinese spending is low, is China has a low social safety net. If you are sick, there are high bills to pay. People also have a hard time accessing education and medical care in the cities. If you retire, there are few pensions.

Linking to dividend paying stocks, all economies evolve over the years, ideally, they evolve to something like US where there are supports throughout life. Taking away the supports means less spending in the economy and more saving for a rainy day. The savings is good for individuals, not so great for the economy as a whole. When you buy stocks, you are hopefully targeting those in the sweet spot of the economy who can and will buy the products and services of the company throughout many economic cycles.

There are more questions than answers, till the next time – to raising questions.