Viewed from afar, China is an export juggernaut whose growth is destined to motor steadily forward in perpetuity. But inside China, the view is much more tentative despite booming activity. While a recent door-to-door survey of 6,000 Chinese households revealed a strong near-term appetite for consumer goods, it also suggested a considerable wariness that could influence the behavior of shoppers.¹ Just 37 percent of those surveyed, for example, agreed or strongly agreed with the statement "I feel confident about my financial future." The respondents also confirmed that they saved a quarter of their family income—vastly more than people in Europe and the United States save.

The survey results support the view that China's savings rate is high because the country's social safety net is thin and most Chinese must pay for health care and pensions out of their own pockets. Asked to give the main reasons for saving, 50 percent of the respondents mentioned the need to put money aside in case family members were to fall ill, and 43 percent cited retirement (Exhibit 1). For most consumers, creating a cash cushion is clearly...