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Justin Fox: China’s Consumers Have a Long Way to Go
Aspire, Bloomberg Top News | 08 December 2015

The Chinese growth miracle of the past few decades has been driven by investing and exporting, not consumer spending. Lately, though, we’re hearing a lot about a “great rebalancing” in which domestic buyers of cars, phones, clothes, health-care and other consumer goods and services come to play a much bigger role in China’s economy.

This would be swell — both for China and for a global economy that’s also in need of some balance. Before we all get excited about it, though, it’s important to remember just how unbalanced China’s economy is.

In 2011, the latest year for which comparative data is available, [consumption] represented 28% of real GDP, compared with 76% in the United States, 67% in Brazil, 60% in Japan, 59% in Germany, and 52% in India.

That’s from “Sold in China: Transitioning to a Consumer Led Economy,” a report released this summer by the Demand Institute, a joint venture of the Conference Board and Nielsen. So is this:

The shrinking of consumption’s share of China’s economy started well before 1999 — in 1952, consumption made up 76 percent of economic activity. It can’t keep going down forever, and all signs are that its decline has halted since 2011. But the likeliest path forward, again according the Demand Institute, will be one in which consumption stays stuck at a relatively low percentage of gross domestic product.  That’s based on an examination of economic development in 167 countries from 1950 to 2011, which found that:

Countries whose underlying economic characteristics were similar to China’s generally saw consumption remain flat relative to GDP for a considerable period after it stopped falling.

What that translates to, according to yet another Demand Institute report released last month, is a forecast of aggregate consumer spending growth in China of 5.2 percent a year for the next 10 years. That’s much faster than the  growth in consumer demand we’re likely to see in any other major economy during that period — so multinational corporations with stuff to sell will continue to be very interested in the place. But that growth will remain concentrated in a relatively small number of cities, a lot of the money will be spent on domestically produced services and the growth probably won’t be enough for China to serve as a major engine of global consumer demand just yet. (According to the World Bank, Chinese household consumption added up to $3.4 trillion in 2013, compared with $11.5 trillion in the U.S. and $10.3 trillion in the European Union.)

It certainly hasn’t taken on that role this year.

China’s trade imbalance with the rest of the world is rising, with the nation’s current-account surplus swelling as a share of the global economy. Much of that has been driven by a rising merchandise trade excess — which is set for a record this year — thanks to sliding imports due in part to commodity- price declines that have walloped natural-resource providers.

Commodity prices will eventually stop declining. Chinese consumers will, barring an economic meltdown, keep increasing their spending. The rebalancing will continue. It just has a long, long way to go before the Chinese economy or the global economy is actually balanced.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story: Justin Fox at justinfox@bloomberg.net. To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

For more columns from Bloomberg View, visit http://www.bloomberg.com/view

 


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