China Economy- Where’s the Growth in China
Where to Look For Explosive Growth in China
America’s consumers are no longer the engine driving world economic growth. That distinction is now quickly being snapped up by the Chinese consumer, and the future looks for China’s internal market looks strong.
A series of reports by the global consulting firm McKinsey and Company examined trends in 606 of China’s 815 cities. McKinsey predicts that consumer spending is expected to increase by 50 percent in China’s top 25 cities in the next five years. That’s an explosive trend by American standards, although China watchers may have become accustomed to such numbers.
The McKinsey report estimates that per capita spending in China’s urban areas will rise to 16,000 yuan per year in 2015, up from 10,000 yuan in 2008. In total, the volume of domestic consumer spending is expected to reach 11.7 trillion yuan. Put that in U.S. dollars and we see a very large number indeed.
One-point-seven trillion dollars. An increase of $850 billion!
McKinsey attributes the consumer spending boom to a rapid increase in the country’s per capita disposable income. The consulting company says it expects consumption growth in China to keep pace with GDP expansion in coming years. McKinsey expects a 10 percent compounded annual growth rate by 2012.
Cities like Beijing will lead the consumption boom. But cities including Shanghai, Guangzhou and Shenzhen, those with export-oriented economies, will have a compounded annual growth rate as low as 6.5 percent during the same period. In other words, consumer spending in the rest of the world will continue to be slack.
A surprising amount of this new Chinese spending will be focused on goods that westerners used to be famous for buying: luxury goods. McKinsey says the time is right for international luxury companies to invest in China and cash in on tremendous opportunities over the next five to seven years. There were 1.6 million wealthy households in China at the end of last year. McKinsey consulting predicts that the tally will increase by 16 percent annually.
China is expected to have the world’s fourth largest number of wealthy households by 2015, following the US, Japan and the UK. The nation is expected to have more than 4 million wealthy households in five years, more than double the current number.
The most striking finding is that China’s wealthy are much younger than those from the US and Japan. About 80 percent are under 45 years of age, compared with 30 percent in the US and only 19 percent in Japan. The wealthy in China are usually much better educated than other Chinese consumers and most of them are self-employed.
Investors take note. There’s a lot of valuable information in these reports which will influence investment trends for the coming decade in the world’s fastest-growing major economy.
