Recently, Chinese Premier Wen Jiabao ????? has raised minimum salaries and welfare spending as a measure to close the gap between the rich and poor. Rural per capita incomes increased 12% in the first half of this year, comparing to 10% increase in urban income for the same period.
The rising income left people with more to spend on consumer goods. China’s retail sales increased almost 14% in July. Sales of clothing, furniture, building materials and home decoration goods have experienced substantial growth for the first half of this year.
As part of its strategy to sustain high speed growth without relying on export, the Chinese government also encourages citizens to consume rather than save. Its current five-year plan has a heavy focus on improving the fundamental for consumer spending. The government plans to build retail chains and convenience stores in the countryside.
This is not the first time that the Chinese government intervenes in its economy. Recently, when there was over-investment in real-estate, the government exercised a crackdown. Someone told me that the Chinese government is like a water-skier behind a boat, every now and then yanking on the rope to alter the boat direction a bit if it heads off course.
It’s true the Chinese government is very sophisticated and business savvy. It operates very much like a corporation. As James McGregor pointed out in his book One Billion Customers, if the business community is the “old boys” club in the West, the Chinese government is the “old boys” club in China.
Pretty soon, I would expect a case study from Harvard Business School on how Chinese government has successfully run its gigantic business :-).