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China Views Untapped Consumer Market As Key To Stimulating Economy


Starbucks said today it plans to open 500 new stores in China this year. And it said it will eventually do more business in China than in the United States. The announcement underscores the potential of China's vast consumer market. NPR's Jim Zarroli reports the Chinese government sees untapping that potential as key to solving many of its economic problems.

JIM ZARROLI, BYLINE: For years, China has poured money into big capital projects - factories and ports and railroads. Now, says Christopher Balding of Peking University, it has become overbuilt.

CHRISTOPHER BALDING: You hear stories and read articles about airports that have been built all over China and they get two flights a day. And you hear stories like this across all types of industries.

ZARROLI: There's simply not enough demand for all the roads and factories China has. And with global growth slowing, that's not going to change anytime soon. So a lot of economists say to keep the economy growing, demand must come from inside. Chinese consumers have to spend more. That's not easy. For one thing, living in is expensive. The social safety net is skimpy, and things such as health care and retirement aren't subsidized the way they are in the West, says Scott Kennedy of the Center for Strategic and International Studies.

SCOTT KENNEDY: Chinese spend a lot of their money on health care and on education, on housing. And so there's not a lot of extra disposable income for what would drive consumption, say, in the United States and other richer countries.

ZARROLI: And the Chinese system sometimes makes a bad situation worse. Laws block people who move to new cities from putting their children in public schools. There are restrictions on where people can invest their money. So Chinese people end up putting a lot of money in state-owned banks where the returns are feeble, says Linda Lim of the University of Michigan.

LINDA LIM: So people rationally at an individual level save a lot for their retirement, for their housing, for their health care, for their children's education.

ZARROLI: Beijing has acknowledged the system needs to change. But almost anything it does invites a painful trade-off. Opening up banks to foreign competition means less money will flow into state-owned banks, many of which already have a lot of bad debt. Spending more money on social services means less money to prop up state-owned businesses, and that could mean layoffs. Lim says Beijing is trying to implement reforms without doing too much damage to entrenched interests with government connections.

LIM: So that's a very difficult and delicate balance between the two. It should ideally take place in a gradual manner, and, in a way, if you rush these things too much you create a lot of dislocations and shocks.

ZARROLI: There have been serious missteps on the government's part. To give people a new place to invest, Beijing encouraged the growth of the stock market. That backfired when stock prices plunged. Scott Kennedy says there's also a lot of resistance to change within the government.

KENNEDY: Well, giving up authority and power over economic choices is not something that the Chinese government wants to do easily. Your brain knows it, but you heart doesn't necessarily agree yet. I think that's where they are.

ZARROLI: But with the global economy slowing down, China has to find new ways to grow. And that means getting Chinese consumers to help pick up the slack. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.