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Look beyond GDP to understand the Chinese economy

By  Patrick Dodd (People's Daily Online)    11:16, July 30, 2014
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OP-ED: NIELSEN Q2 CONSUMER CONFIDENCE - CHINA

It is true that China’s long run of red-hot, double-digit growth has come to an end for now. That’s a fact, but it’s not a story. Specifically, it’s not the true story of what’s happening in China. To understand that story, you must look beyond GDP data to the changing behavior of Chinese consumers.

From a consumer perspective, China is ushering in a new age: As it shifts away from an investment-led economic model to one driven by the population at large, consumers are taking the reins. And they do so enthusiastically: Consumer confidence in Q2 remained at a historic high for the third-straight quarter, with an uptick in spending intentions and perceptions about their personal finances, according to the Nielsen Global Survey of Consumer Confidence and Spending Intentions. (Watch how far confidence has come in the past decade with this interactive Consumer Confidence Trend Tracker.)

These results are being reported in the context of already-growing per capita spending and a continued rise in disposable incomes. In 2013, the average disposable income of Chinese urban residents grew at 9.7 percent to surpass 26,955 yuan ($4,389 USD).

One driver of these numbers is a rise in 2013 average pay of 14 percent for China’s million migrant workers (now numbering approximately 270 million). These consumers share the same aspirations and pursuit for a better life as the existing middle class and will devote more of their increasing disposable income to achieving it.

The World Bank puts Chinese household consumption today at about 35 percent of GDP, compared to the worldwide average of 60 percent. By 2020, the Chinese consumption rate is estimated to reach between 45 percent and 50 percent.

The 50 percent figure translates into 26.9 trillion yuan in additional consumption by 2020.

The other fundamental driver enabling China’s movement toward a consumer-led economy is urbanization. As many millions of Chinese move to the cities in search of higher incomes, a vast number of new consumers with cash to spend will emerge. Many are expected to flock to tier 2 and tier 3 cities, which have reported China’s fastest-growing consumer confidence scores in the past year. With high optimism and growing numbers, these so-called “emerging tier 1” cities are poised to become powerhouses of the Chinese economy.

This phenomenon has a long way to run. Today, about half of China’s 1.3 billion people live in towns and cities. By contrast, in the U.S., about 82.4 percent live in towns and cities. EU nations have similar urbanization rates.

Historically, China has been a country of savers. But all these changes — rising incomes, rising spending and increased urbanization — intersect with a crucial population trend with cultural as well as economic implications: China’s generation gap.

Compared with those born in the 1970s and the early 1980s, the generation born after 1990 grew up in an era during which both the Chinese economy and information technology developed rapidly – when the door of China swung wide open. The “post-90s” are more affluent, more brand-conscious, and more willing to spend than the generations that preceded them.

They represent a massive opportunity for manufacturers and retailers. We see the beginnings of their effect on the world economy in the shape of the “local giants” that are springing up in China to challenge Western multinationals.

Welcome to the new China, in which population changes, cultural shifts, and new economic priorities are creating new consumers and new markets. Consumer spending will not make up for every shred of growth in the investment-driven economy, but we expect it will drive GDP growth of 7-8 percent over the next few years. That is an overall figure, which means there will be high growth in plenty of places, for those who are paying attention to these emerging opportunities.

In short, as these trends play out, opportunities will be more than plentiful, for those who know where to look.

Patrick Dodd is Managing Director of Nielsen China, based in Shanghai.

(Editor:Wang Xin、Liang Jun)

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