China’s car purchases are in line with countries with 50-60% of GDP Consumption

1. examines China’s consumption statistics. There is a lot of concern that China’s economy is unbalanced with too much investment and not enough consumption. There are reasons to suspect that China’s consumption is nowhere near as low as the official data suggest, as Stephen Green and Wei Li at Standard Chartered highlight. For one, there’s “grey income,” cash that’s exchanged under the table, which escapes the notice of the state statisticians. In addition, the Chinese government undercounts how much people pay in rent.

That kind of spending is hard to confirm. So Green and Li looked at a single, relatively large purchase that is much clearer and easier to collect: car sales. Even as consumption’s contribution to GDP has dropped over the last decade, China’s car sales as a percentage of GDP rose steadily.

Standard and Chartered researchers compared the value of car sales as a proportion of GDP with overall household consumption versus GDP, and plotted China’s data alongside those of other major countries.

2. China does have a high debt service ratio. It is about 39% of GDP. However, if the debt grows slower than the 7% GDP growth then the debt service ratio will shrink. Other countries had problems when debt service ratios were in the 20-30% of GDP range. South Korea has had 40% debt service ratio.

3. China opened a new type of free-trade zone in a bid to test financial changes that the government said could eventually spread to other parts of the country.

The new zone, which has the backing of the State Council, the Chinese cabinet, was first announced last July. It is expected to allow banks and other businesses within its boundaries to experiment in areas that are tightly controlled in China, including loosening regulation of interest rates and full convertibility of nation’s currency, the renminbi.

By opening the new test zone in Shanghai, a city of 20 million and one of the country’s major financial centers, analysts say the government appears to be signaling its determination to ease restrictions on investment while also trying to press ahead with plans to open up its financial system and internationalize its currency.

The government has not yet given a detailed outline of how the pilot zone — which covers 29 square kilometers, or about 11 square miles, of ports and logistics areas — is expected to operate. But on Friday, the State Council said foreign and private companies would soon be allowed to invest freely in banks, shipping ventures, travel agencies and health and medical insurers that are set up in the experimental zone.

Restrictions are also being lifted on foreign investment in some telecommunications services and on the production and sale of video game consoles.

If you liked this article, please give it a quick review on ycombinator or StumbleUpon. Thanks