Why the tool to fix our economy involves people sleeping at Ikea and a six-cornered spanner

FOR years Ikea has been doing a strange thing in China, letting people sleep in its stores. Weirdly enough, it could be the tool to save our economy.

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IF YEARS of communist dictatorship weren’t bad enough, the Chinese people are now suffering further — by trying to make furniture from an Ikea flatpack.

Ikea is booming in China and that means Chinese people are getting used to using the ‘six-cornered spanner’ — that’s Chinese for Allen Key.

This is important for Australia for one very big reason.

Chinese people used to not really spend much at all. They used to just save. In 2007, for example, they saved 50 per cent of their income. (By contrast, we saved just over 20 per cent that year). They’ve been the biggest savers in the world, as this graph shows.

Gross savings (% of GDP)

Data from World Bank

Chinese people scrimped on everything and put their money in the bank. That made the Chinese government kind of annoyed. The government was doing everything it could to try to improve the economy, but the people weren’t helping!

So at that time, economic growth in China came from government projects — roads, railways, whole new cities, etc.

That was great for us. We sold them enough steel to build a tower to the moon and enough coal to illuminate a billion light globes.

And we got rich. And it was good.

But then the Chinese economy began to change. They stopped building so much new stuff. They had most of the roads and railways they needed, for now.

Industrial production growth started falling. And GDP growth too.

Sources: CEIC, IMF, RBA.

It seemed like maybe, the Chinese growth miracle was over, and the good times for Australia would be over too. Unless China could find a new source of spending. There was one clue in the graphs above — retail sales growth seemed resilient — not falling as fast as industrial production, at least.

This is where Ikea comes in.

When offered desirable things to buy, the Chinese people seem to be getting a bit loose. They’re willing to open their wallets and spend some yuan on furniture that looks good, but doesn’t cost an arm and a leg.

Ikea is making a killing. It has 16 stores in China and China is now its fastest growing market.

Ikea has done the hard yards though, by being extremely kind to Chinese shoppers. It opened there around a decade ago and for a long time, apparently, Chinese people used to just come to Ikea to use the furniture. People would literally get into the beds on display and fall asleep.

Strange but true. Photo: Kevin Frayer/Getty Images

Shopping is tiring, OK? Photo: Kevin Frayer/Getty Images

Ikea China has been very patient — encouraging people to come and check out the furniture without buying things — and now it’s paying off.

The rise in Chinese consumption can pay off for the Australian economy too. Here’s the two ways that can happen.

1. Ikea will be opening a lot more stores, and so will companies like it. We can sell them the raw materials to build them. A consumer economy needs infrastructure to support it.

2. Chinese people will be consuming a lot more than just furniture. They’ll be spending up on travel, and education and health services. All of these Australia can export to them and make good money from. With our lower dollar and time zone advantages, Australia is already in the hot-seat for tourism market, with China our top customer.

Source: ABS

Some agricultural producers say after the mining boom, Australia can grab hold of an even bigger Chinese “dining boom”, selling them top quality fresh food and other products like biscuits and wine.

So the Chinese consumer — with their six-cornered spanner in their hand — is not just going to build an Ikea bookcase. They’re hopefully going to build a new and stronger economy in Australia.

Jason Murphy is an economist. He publishes the blog Thomas The Think Engine. Follow him on Twitter @jasemurphy.