Special Report on China Consumption

SUMMARY

• China’s private consumption was around USD3.3trn in 2013, almost as large as Germany’s GDP. However, there is still huge room for Chinese consumption to grow at a fast pace. China’s private consumption represents only 36% of its GDP, compared to the world’s average of 60%.
• China’s consumption will be boosted by a set of ongoing and expected structural reforms. The establishment of a universal medical insurance scheme and a minimum pension in the rural sector will substantially reduce precautionary savings and promote consumption. The rural land reforms will also transfer wealth from the state to village residents, creating an enormous wealth effect. Household earnings will be lifted by rising wages and labour productivity.
• A rebalancing China means consumption growth will soon outstrip GDP growth. By 2020, China’s private consumption will represent 44% of its GDP and will be around 70% of the size of the US consumer market, compared with just 40% today. China’s consumer sentiment will exert a larger impact on economic growth, the inflation outlook, and monetary policy.
• China’s rising middle class will help drive the consumption growth. Over the next few years, 100m more middle-income households will enter the market and their spending will make up two-thirds of the total urban consumption, compared with just one-third in 2012.
• To anticipate this trend, a tool is needed to better measure the pulse of Chinese consumers. While existing consumer confidence surveys are available, consistent and objective private-sector sponsored surveys are few. To fill the void, ANZ teamed up with Roy Morgan Research to develop a new index that gauges China’s consumer confidence and inflation expectations. We are delighted to announce the results for the period of January-May 2014 separately.¹

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