China's poor middle class limits consumers spending

The Economist had an excellent article (h/t Paul Denlinger) on the reasons why Chinese consumers spend relatively little of their income on, eh, consuming. Consumer spending in China is low and actually dropping as a percentage of its GDP to 36%, while in the US it is 70%.
China's economic growth is coming from enterprises and the government, is not generated in the huge shopping malls, the articles says.

The implication of all this is that if China is to shift the mix of growth towards consumption, urging households to spend more of their income will not be enough; the government will also need to increase the share of national income going to households. Mr Kuijs [Beijing-based economist of the World Bank who just released at study on this issue] argues that this will require a shift in the composition of growth from capital-intensive manufacturing towards labour-intensive services. He recommends a package of reforms which include: financial liberalisation to lift the cost of capital; scrapping distortions in the tax system which favour manufacturing over services; increasing the prices of industrial inputs such as energy; removing restrictions on the development of labour-intensive services by, for example, tackling monopolies; and a stronger exchange rate to stimulate production in domestic service industries. Increased government spending on health care, education and a social safety net would also encourage households to save less and spend more.

The argument dovetails nicely with the debate on the emergence of China's middle class, like here.)