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China plans "more money for the masses"

Yuan notes.

TEXT OF STORY

STEVE CHIOTAKIS: Violence continues today in Libya, where demonstrators are demanding the ouster of Colonel Muammar Gaddhafi. It's not only political, they're also mad about high unemployment and rising food costs -- something that protesters in other countries have also complained about.

In China, the government doesn't want to take any chances on a revolt. So this week, officials are unveiling a five-year economic plan as part of the National People's Congress in Beijing. The theme? More money for the masses.

Marketplace's China Bureau Chief Rob Schmitz is with us from Shanghai to talk about it. Hey Rob.

ROB SCHMITZ: Hey, Steve.

CHIOTAKIS: I thought China's economy was growing by leaps and bounds.

SCHMITZ: Yeah, what's wrong, right? There's no doubt China's economy is growing fast, but for the past five years, household income in China hasn't grown as fast as the GDP. And that means that on an individual level, people aren't seeing as much growth in their wallets is the country is seeing in its coffers. And that's worrisome; especially with the price of food and everything else here climbing so quickly. On Saturday, Wen Jiabao, who is China's premier, told the country the government is on a mission to raise household income. I spoke to economist Michael Pettis about this, and here's what he had to say about Wen's promise:

MICHAEL PETTIS: I don't think they can do it. I mean, they can do it, but they can only do it if they accept much lower levels of growth.

What he means is that in order to raise household income, China will have to raise interest rates, raise wages, and raise its currency -- these three things are the reason China's had so much growth in the first place. In other words, cheap loans, cheap labor and cheap exports, so changing this formula won't be easy.

CHIOTAKIS: And what does this mean for the U.S., Rob?

SCHMITZ: Well, most importantly, it would mean your average middle-class Chinese would have more money to spend on things like iPads, Big Macs, Buicks, and every other iconic American product that's sold here. In short, this would turn more Chinese into consumers, and that'd be great for American businesses.

CHIOTAKIS: That's Marketplace China Bureau Chief Rob Schmitz, joining us from Shanghai. Thanks, Rob.

SCHMITZ: Thanks, Steve.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.
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