FACTBOX: What it takes to rebalance the global economy
Shifting the global economy so that countries that run large current account deficits in the West and major exporting nations with external surpluses located mostly in the East gradually become more balanced will require political will, leadership, cultural change and time.
China's private consumption makes up a little more than a third of overall gross domestic product, while in the U.S. and British economies consumption accounted for nearly three quarters of GDP in boom time.
The flip side is savings. Chinese and Indian households last year saved about 40 percent and 32 percent of their disposable incomes, respectively, while the personal saving rate in the United States was just 3.2 percent.
The United States is pressing its G20 partners to agree on a "framework" for bringing about better global balance. Below are statistics and anecdotes to illustrate what might need to happen to make that goal a reality.
WHAT KEY ASIAN ECONOMIES CAN DO TO SPEND MORE:
* STRENGTHEN CHINA'S SERVICES SECTOR
If Beijing takes the G20 effort to heart, China would likely lose jobs in the manufacturing sector, but could offset those losses with more jobs on the service side of the economy. Economic planners already expect the service sector to grow to about half the economy from little more than a third now, driving up incomes and leading China away from its investment-intensive growth model.
The McKinsey Global Institute said last month that meeting a series of policy objectives, including growing the services sector, increasing the availability of consumer credit and improving the social safety net, would boost consumption by 8 trillion to 15 trillion yuan ($2.1 trillion) by 2025.
* INCOME GROWTH NEEDS TO SPREAD
In China and India, incomes are much higher in large urban centers. Emergency actions in both countries during the crisis targeted rural populations, and longer-term infrastructure projects should help employment and income growth.
In China, wealth has accumulated on the eastern seaboard. For example, in 2008 GDP per capita was $9,072 in Beijing but $2,594 in Chongqing, a western Chinese city of 31 million people.
India's GDP per capita was $999 in 2008, exceeded by Mumbai's $2,600 and New Delhi's $1,734.
* BARRIERS TO MORE CONSUMPTION
The obstacles are a deeply entrenched penchant for personal saving in China and a fragmented retail sector in India.
A survey conducted by China's central bank in late May showed 47 percent of respondents would like to save more, up 9.5 percent from the first quarter and the highest since the survey began in 1999. Only 15.1 percent said they would spend more.
India is still waiting for reforms to its retail sector, expected to reach $833 billion by 2013, that would relax foreign direct investment limits on retailers.
WHAT WOULD IT TAKE FOR THE UNITED STATES TO SAVE MORE?
* A DOSE OF CONSUMER RESTRAINT
Thanks to the housing bust and financial crisis, this is already happening. The saving rate, which had dwindled to 1.2 percent in the first quarter of 2008, more than quadrupled to 5 percent by the second quarter of this year.
What is unclear is whether this is a short-term reaction to a severe drop in household wealth from plunging home and stock values or evidence of a lasting behavioral change.
Even if Americans revert back to their free-spending ways once the economy recovers, it is unlikely they will have access to the same level of easy credit as in the boom days, when household debt soared to a record high.
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