China has a great consumer market. But still recently it is not easy for people to ignore the news about a slow-growth dilemma that China seems to be heading into. What is actually happening is that the consumer wealth and spending in China will keep growing rapidly. Those who are pessimistic about economic significance and position of China, they are seeing the performance of the Chinese market from an incorrect perspective.
Figure 1.0 Chinese consumers love shopping overseas
No need to concern for consumer spending (% of GDP) in China
An export-based growth strategy backed by large domestic savings and investment was the right path for China in the early 1990s (which was also widely adopted by many other developing countries). And it has been remarkably successful (IMF 2007). One key consequence resulted from the investment-and-export intensive growth strategy is that the consumer spending as a percentage of GDP was decreasing significantly. The consumer spending of China as a percentage of GDP fall from 51% in 1985 to 43 percent in 1995, 38 percent in 2005, and 34 percent in 2013. At the same time, consumer spending as a percentage of GDP was 60% in the United States, 58% in Japan and 59% in Germany.
Table 1.0 List of top 10 consumer market of the world
Source: United Nations Statistics Division 2014
But in fact, the relatively poor consumer spending (% of GDP) in China did not describe the full story. From 2009 to 2014, the scale of economy in China in term of GDP had nearly doubled. During the same period, the consumer spending had more than doubled. According to the National Bureau of Statistics of China,
Disposable income is important, and it’s good enough
Disposable income is the gross or total income of a firm or individual from where direct taxes (includingincome tax, PAYE etc) have been successfully deducted. Disposable income is usually monitored on a regular basis and is used for gauging an economy’s overall condition (readyratios.com 2016). In year 2015, Disposable Personal Income in China increased to 31,195 CNY (approx. US$ 4,913); during the same period, the US disposable personal income reached $13,682.4. Considering an annual growth rate of 8.15%, the individual income in China is really growing fast and it is awesome.
A boom in discretionary spending in China
Discretionary spending refers to spending by consumers on things that they want to buy rather than on things they need such as housing or food. With better personal income and the fact that many Chinese consumers are not longer satisfied with the spending on only essential needs, Chinese consumer’s discretionary spending is currently experiencing a rapid growth. For example, as the below chart estimates, by end of 2018, China will overtake the US as the world’s largest movie market (China became the world’s second-biggest movie market, displacing Japan in early 2013).
Lastly, China is categorized as a culture in which people think of the long-term (based on Hofstede’s research) which is in line with a well-known phenomenon in contemporary China, a high personal savings rates of households compared with those in developed economies. But once the fundamental needs are met and a sense of security is felt, it is very likely that the Chinese consumers will no longer suppress spending and therefore continue to surprise the world.
List of reference
chinagoabroad.com 2015 Faster and Furiouser: China’s Q1 Box Office Review, accessed on Mar 6, 2016 [online] available: http://www.chinagoabroad.com/en/commentary/faster-and-furiouser-china-s-q1-box-office-review
IMF 2007 Finance & Development, March 2007 Washington, DC: International Monetary Fund.
tradingeconomics.com 2016 Final consumption expenditure – etc. (% of GDP) in China, accessed on Mar 6, 2016 [online] available: http://www.tradingeconomics.com/china/final-consumption-expenditure-etc-percent-of-gdp-wb-data.html
readyratios.com 2016 Disposable Income, accessed on Mar 6, 2016 [online] available: http://www.readyratios.com/reference/accounting/disposable_income.html
United Nations Statistics Division 2014 Consumer markets of the world, accessed on Mar 6, 2016 [online] available: http://unstats.un.org/unsd/snaama/selbasicFast.asp