Creator: Maxinomics · Published: 2025-04-24 · Length: 13:18 · Watch on YouTube

China's citizens save 40% of their income, where in the US it's less than 10%. This is the main source of tension between China and the rest of the world. Creating huge distortions between how much China's people buy from the rest of the world compared to how much they sell to the rest of the world. (video description)

1) Detailed outline

[0:00] Intro

• The average Chinese citizen saves more than 40% of their income, versus less than 10% in the U.S., because saving has been the only real choice.
• Gaps in health care and social security, plus a one-child policy that left generations depending on a single child in old age, push people to save.
• Only about 38% of Chinese GDP comes from citizens buying things, compared with about 70% in the U.S. That makes China overly reliant on selling to other countries or on building apartments, roads, and bridges.
• The trouble is that eventually you've built too much, or other countries say they want less of your stuff, which Phil says is exactly what's happening now.

[0:47] China demands growth

• Low household spending wouldn't matter much if China weren't officially promising 5% growth every year in documents and speeches.
• If people won't spend, growth has to come from making and selling more; money must change hands. When Xi Jinping announces 5%, someone has to make it happen.
• A provincial leader in a party that likes to get its way won't let the president down, and the first, easiest move is to build.

[1:21] The building boom, too much?

• Over about 25 years China at least tripled its road network (as much asphalt as all U.S. roads), built the equivalent of every U.S. bridge in 20 years, added housing units equal to the entire U.S. stock plus about 50 million more, and laid rail equal to all of Union Pacific, BNSF, and CSX track combined.
• The infrastructure was staggering and badly needed to modernize the economy, but there are only so many people to drive the roads and fill the homes.
• China's ghost cities, sprawling new developments often in the middle of nowhere, sat with millions of vacant units for years. Phil says some coverage was hyperbole, but much was true and some still is.
• The incentive problem: you get what you reward. Every part of building an apartment complex (materials, labor, marketing, consulting) counts as economic activity and adds to GDP whether or not anyone ever lives there, so a provincial leader can point at it and claim 8% growth.
• Leland Miller: you could build a bridge, tear it down, and build it again and get whatever GDP number you want in the short term, but "it's not productive growth. It's not real growth."

[3:10] Leland Miller and China Beige Book

• Miller runs China Beige Book, which Phil has followed for years and says consistently gets China right because it collects its own data inside China through people on the ground.
• Miller says the firm drew attention by publishing an alternative to Chinese national statistics that could see problems coming the government didn't want to acknowledge. He calls it the largest private data-collection operation in the world focused on China's economy.

[4:00] What China needs to do to grow

• China is running out of things to build at the pace of the last two decades. Millions of housing units sit vacant, and some of the biggest construction firms and home builders have gone through bankruptcy in recent years.
• Selling more abroad could work, but China already does a lot of it, and countries are less willing to absorb the output of its excess manufacturing capacity because they want to make things too.
• Examples: BMW, Volkswagen, and Mercedes employ almost 1% of Germany's workforce, and Germany doesn't want them to go under. The U.S. doesn't want to lose steel mills. India has sky-high tariffs on Chinese smartphones, solar equipment, and even toys. The walls are getting higher by the day.
• Household consumption as a share of the economy: global average 56%, U.S. 68%, Europe 52%, Japan 56%, China 38%. The real answer is for China's people to buy what its companies make. So why don't they?

[5:26] A history of struggle in China

• Reason one is history. China has had 12 famines big enough to be named over the past 400 years, roughly one every 40 years, and history's worst famine killed at least 30 million people there about 60 years ago, partly because of human choices. People remember.
• There isn't enough farmland for the population, and what exists is prone to floods and drought. China's farmland adds up to close to 600 million acres, and it takes about an acre to feed one person for a year.
• So about 40 of every 100 calories consumed in China are imported. In the U.S. alone, an area roughly the size of Utah grows calories for export to China.
• In environments of scarcity, people spend less and save as a defense against an uncertain future.

[6:32] The 4-2-1 dilemma and the one-child policy

• Reason two: China's 36-year one-child policy means today's parents can count on only one child to care for them in old age.
• Historically, children were the household's labor force and its elder care. Even now, only the wealthiest Americans can afford 24/7 care for aging relatives, and nursing homes simply don't exist for most of the world, so care falls down the age ladder.
• Increasingly in China, one child cares for six people (two parents and four grandparents), the 4-2-1 model.
• Hospital costs make saving rational. Median income is about $7,000 a year, and an average hospital stay costs about $1,200, roughly 17% of median income, with half the population earning less.
• Phil stresses China doesn't have nonexistent or low-quality care; the state pays about 72% of health costs, but care is unevenly distributed between rural areas and tier-one cities like Shanghai, and out-of-pocket costs land heavily on catastrophic events and chronic care.

[8:16] Chinese people have nothing to invest in

• Reason three: don't lose the money you saved, because the prospects for turning money into more money are nowhere near what Westerners expect.
• The average American automatically buys about $500 of stock a month through a 401(k), which buys the S&P 500 and shares of the 500 biggest U.S. companies; Phil calls this perhaps the biggest reason Americans wake up to green screens most mornings.
• Tax-advantaged investing tripled U.S. stock ownership: only 20% of Americans owned stock in 1979, versus over 60% today, thanks to 401(k)s and IRAs. No other country is near that level.
• That feeds a cycle: wealth leads to spending, spending builds companies, people buy stock in those companies, and wealth grows. Economists call the spending boost the wealth effect: the richer you feel, the more you spend.
• China's party isn't interested in growing household wealth through investment, which shows in policy and in Chinese stock indexes trading at the same level as 20 years ago. You can't raise consumption just by telling people to spend.
• Miller: the Chinese economic model, then and now, suppresses households and the private sector to benefit the state.
• The best, most profitable companies (construction, energy, defense, banking) are state-owned enterprises with no path for ordinary people to invest. Phil compares it to the U.S. government owning JPMorgan and every bank, Lockheed Martin and every defense contractor, and ExxonMobil and every oil company, with none of those compounding returns reaching retirement accounts.
• The upside in theory is that profits get redirected into building China; the trade-off is that ordinary people don't participate or control their share of the returns.
• Phil calls the U.S. 401(k) and retirement-savings laws one of the most powerful economic things the country ever did, tying people's money to rising markets, though the U.S. has the opposite problem of saving too little and consuming too much.

[11:42] Summary

• Lots of struggle, not enough kids, nothing to invest in: this, Phil says, is where almost all the global tension with China comes from.
• Other countries supported China's development, set up shop there, and kept tariffs low, expecting a wealthy population of 1.4 billion that would buy from them. That was the free-trade rallying cry of the 2010s.
• Twenty-five years in, Chinese consumers are barely buying, and the rest of the world suspects it's not because people don't want to but because the government doesn't want them to.
• Miller's fixes, all anathema to how Xi runs the country: shift assets from the state sector to households and the private sector, build a much more robust social safety net, and appreciate the currency to boost household purchasing power. None is happening.
• The tension won't ease until China's consumption share rises. Even a modest move from 38% to 48% would come close to balancing China's trade with the world.
• Phil teases another big China video with Miller and recommends following China Beige Book on X.

2) Things mentioned

Economics and policy ideas

• Household savings rate: over 40% of income in China versus under 10% in the U.S.
• Household consumption share of GDP: China 38%, U.S. 68% to 70%, Europe 52%, Japan 56%, global average 56%.
• GDP growth targets: Beijing's annual 5% goal and the provincial pressure to hit it.
• Investment-led growth and unproductive GDP: building that counts toward GDP whether or not it's used, including Miller's build-and-tear-down bridge example.
• Incentive design: "you get what you reward for," applied to officials judged on growth figures.
• Excess manufacturing capacity and trade imbalances: China selling far more abroad than its people buy.
• Protectionism and tariffs: India's tariffs on Chinese smartphones, solar gear, and toys; U.S. steel and German auto jobs as political red lines.
• Precautionary saving: saving as a hedge against scarcity and uncertainty.
• One-child policy and the 4-2-1 structure: one child supporting two parents and four grandparents.
• Health-care cost sharing: the state covering about 72%, with heavy out-of-pocket costs for catastrophic and chronic care.
• Food security and calorie imports: about 40% of calories imported.
• The wealth effect: feeling richer makes people spend more.
• State-owned enterprises (SOEs): the most profitable firms owned by the party, closed to ordinary investors.
• Rebalancing levers: moving assets to households, a stronger social safety net, and currency appreciation.

Companies, organizations, and products

• China Beige Book: Leland Miller's firm, which collects its own business data inside China.
• Union Pacific, BNSF, and CSX: U.S. railroads used to picture China's rail buildout.
• BMW, Volkswagen, and Mercedes: German automakers employing almost 1% of Germany's workforce.
• JPMorgan, Lockheed Martin, and ExxonMobil: U.S. firms used to illustrate what state ownership would look like in America.
• Chinese home builders and construction firms: several of the largest went bankrupt in recent years.
• 401(k) plans and IRAs: U.S. tax-advantaged retirement accounts that tripled stock ownership.
• Smartphones, solar equipment, and toys: Chinese exports hit by Indian tariffs.
• X (Twitter): where Phil recommends following China Beige Book.

Markets and industries

• S&P 500: the index most 401(k) money flows into.
• U.S. stock ownership: 20% of Americans in 1979, over 60% today.
• Chinese stock indexes: trading at about the same level as 20 years ago.
• Chinese real estate and construction: ghost cities and millions of vacant units.
• Steel, autos, and solar: industries where other countries resist Chinese imports.
• Agriculture and food imports: China's limited farmland and reliance on foreign calories.
• Chinese health care: a median income of about $7,000 against an average hospital stay of about $1,200.

Places and history

• China's infrastructure boom: roads tripled, bridges, housing, and rail built over about 25 years.
• China's ghost cities.
• Named famines in China: 12 over 400 years, including the famine of about 60 years ago that killed at least 30 million.
• Shanghai and tier-one cities versus rural China: the gap in health-care access and cost.
• Utah: the size of the U.S. farm area growing calories for China.
• Germany, India, Japan, Europe, and the U.S.: trading partners and comparison economies.
• The 2010s free-trade push: the hope that 1.4 billion Chinese consumers would buy foreign goods.

3) Biographies

Phil Andrews (presenter)

Phil Andrews is the producer and on-camera host of Maxinomics ("the guy in the videos and the comments"), a Morning Brew channel that explains economics, business, and geopolitics through stories. Here he lays out three reasons Chinese households save so much and ties them to China's trade tensions.

Leland Miller (guest)

Leland Miller is the co-founder and CEO of China Beige Book, a research firm that surveys thousands of businesses in China to give an independent read on its economy, and a frequent commentator on China's economy and financial system. In the video he argues that construction-driven GDP isn't real growth, that China's model suppresses households to benefit the state, and that Beijing won't adopt the fixes that would raise consumption.

Xi Jinping (subject)

Xi Jinping (born 1953) is general secretary of the Chinese Communist Party and president of China, leading the country since 2012–2013. The video points to his annual 5% growth targets as the pressure behind the building boom and says the reforms needed to lift household spending run against how he governs.

Production credits

Producer Phil Andrews; video editor Sebastian Vega; motion graphics by Tom Grillo; director of production services Sam Wolf; thumbnail by Tom Grillo; franchise content producer Tariq Abdellatif; chief content officer Devin Emery.