China will soon boast seven of the world's ten biggest shopping malls. Yet Chinese households are hardly the most eager shoppers. Consumer spending has fallen from 47% of gdp in the early 1990s to only 36% in 2006, the lowest proportion in any large economy (see left-hand chart). At the other extreme, American households consume 70% of gdp.rnIt is widely agreed that China needs to rebalance its economy in favour of consumption and away from exports. Not only would this make future growth more sustainable, but it would also reduce China's huge trade surplus. However, to boost the share of consumption, you first need to understand why it has been declining. The popular explanation is that Chinese households have been saving an increased slice of their income because of greater uncertainty over the provision of pensions, health care and education. This leads economists to focus on how to encourage households to spend more of their income.
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