For years, the Chinese government has tried to reorient its export-based economy to one that is driven by domestic demand, but to little avail.
The share of China's consumer spending in G.D.P. actually fell from 45 percent to 35 percent in the last decade. Domestic demand is suppressed in large part because of the absence of a well-developed safety net. When people have to worry about expensive medical bills and their children's future tuition fees, they are less likely to spend money on other things. In 1998, when nearly 90 percent of rural residents were not covered by any health insurance, spending by farmers actually dropped, the first known such decline since 1978.
Even so, the government did not take any serious steps to address the issue until the global economic crisis made it imperative to stimulate domestic demand. From 2009 to 2011, the government pumped 173 billion renminbi, or about $27 billion, into the health care sector. While the revved-up government support has boosted the health coverage rate to more than 94 percent nationwide, it has not translated into real gains in domestic consumption.