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 percent of real GDP, compared with 76 percent in the United States, 67 percent in Brazil, 60 percent in Japan, 59 percent in Germany, and 52 percent 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.
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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.
What that translates to 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.
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.