China’s impending consumption boom

China's consumption relative to the USA 2013

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China’s private consumption-to-GDP ratio is far below the average international average. According to the World Bank, private consumption represented 60 per cent of world GDP in 2012. For countries categorised as the middle-income group – to which China belonged in 2012 – the average consumption ratio was 55 per cent of GDP, or 19 percentage points higher than that of China.

Nonetheless, China’s consumption deserves serious attention. The size of China’s private consumption is gigantic. In 2013, its nominal value was estimated to be $US3.3 trillion, representing only 36 per cent of China’s GDP but equivalent to the 2013 German GDP or the whole Japanese economy in Purchasing Power Parity (PPP) terms. Given its sheer scale, China’s consumption is globally relevant and significant.

China is determined to move towards a consumption-led economy. As such, structural reforms have been focussing on boosting private spending. China declared it would deepen reforms comprehensively after the third Plenum in November 2013. The government is determined to double per capita income by 2020 from 2010 levels. Concrete structural reforms are underway or are expected to take place in order to achieve this grand strategic shift. The reforms are truly extensive, aiming to address many impediments to private consumption. In 2020, China’s private consumption will be the same size as 70 per cent of the US consumer market.

This is an edited excerpt from the ‘China consumer confidence: tapping the impending consumption boom in China’, ANZ Research Quarterly, Q3 2014. The full article is available on ANZ Live.

You can also watch China Chief Economist Li-Gang Liu discussing china’s consumer spending.