In the latest Financial Page column at The New Yorker , James Surowiecki takes a look at consumption in China. The worlds's most populous nation has developed a reputation for thrift to the extreme. He estimates that Chinese households and institutions sock away $2.5 trillion a year. And consumption is just 35% of GDP--"significantly lower than for most Asian countries and only half the rate in the United States," Surowiecki writes. But it hasn't always been this way in China: One common explanation for this thrift is that it’s the product of “Confucian values.” Yet China has not always been so thrifty—in the eighties, consumption was more than fifty per cent of G.D.P.—and today other “Confucian” countries consume far more than China does. The real source of China’s underconsumption is the way it manages its economy. Credit isn’t always that easy to come by. China’s policy of holding down the value of its currency means that consumer prices are higher than they would otherwise be, which obviously discourages spending. And, as a recent McKinsey Global Institute study points out, once you move beyond China’s biggest cities, there’s often a dearth of retail outlets and products for sale. Potential spenders are also held back by systemic issues. Paradoxically, in this still putatively Communist society, families for the most part have to fend for themselves. Health insurance is limited in what it covers and far from universal, so getting sick can be a costly proposition. Only a fraction of the workforce receives unemployment benefits, while pensions are underfunded and haphazardly administered. A scarcity of student loans and subsidies for higher education, meanwhile, means that paying for college requires hefty savings. The inadequacy of the social safety net forces the Chinese to engage in “precautionary savings,” buffering themselves against disaster. A recent Brookings Institution study attributes much of the increase in household savings to the rising cost of health care, together with that of housing and education. Read The Frugal Republic here .