The Chinese as a Global Consumer Force

China’s economy has been booming for several decades. The living standards of the Chinese people have increased 31-fold since 1979, when the country’s reform process started to take shape. We wonder: What is the Chinese people’s current share of global consumption?

A. 60%
B. 36%
C. 22%
D. 7%

A. 60% is not correct.

Almost 4.3 billion of the world’s 7.1 billion people — or about 60% of the world’s population — lives in Asia. In contrast, Asia currently accounts for only about 28% of private (household) consumption globally.

As the region’s economy continues to grow and a larger middle class emerges, private consumption will almost certainly rise. However, most Asian countries have a long way to go before reaching U.S. rates of consumption.

In 2012, private consumption by American households accounted for 69% of U.S. GDP. Among Asian economies, only Japan approaches the U.S. rate of consumption. At 61% of GDP, Japan’s private consumption matches the U.S. rate back in 1980.

Private consumption in several other major emerging markets is at or rapidly approaching the United States’ 1980 rate. In Brazil, it stands at 62%, in India at 57% and in Indonesia at 55%.

B. 36% is not correct.

Just 36% of China’s GDP was attributable to private consumption in 2012. Part of the reason for this relatively low rate is that China’s official statistics understate consumption — especially housing costs and private consumption paid for by businesses.

Interestingly, in 1980 — when China began introducing elements of Western-style capitalism — consumption as a percentage of GDP (at 51%) was not only higher than today, it was also much closer to Western rates of consumption.

Throughout the 1990s and 2000s, as China’s economy experienced an export-led boom, private consumption as a percentage of GDP fell steadily. By 2008, it bottomed out at just 35% of GDP.

This decline, however, does not mean that Chinese households were consuming less. In fact, in dollar terms, China’s private consumption increased from $554 billion in 2000 to $3 trillion in 2012.

But during this same period, China’s GDP — and in particular the share of GDP as exports — was increasing much faster.

C. 19% is not correct.

From 1980 through 2012, China’s share of the world population dropped slightly from 22% to 19%. Although China’s population increased in absolute terms by almost 400 million over this period, it grew at a slower rate than the rest of the world, in large part because of the country’s strict “one-child policy.”.

China’s GDP — which was about $8.4 trillion in 2012 — equals 11% of world GDP ($72.7 trillion). Thus, China’s share of world population is nearly twice its share of world GDP. This is one way of measuring how far China still needs to go to catch up to Western levels of economic development.

However, China is catching up quickly. In 2012, China was responsible for 28% of the world’s economic growth. In other words, nearly a third of the world’s economic growth took place in China.

D. 7% is correct.

Chinese consumers spent $3 trillion in 2012 — or 7.1% of the world’s total private consumption ($41.9 billion), according to data compiled by the United Nations.

There are several reasons why China’s private consumption is likely to continue growing robustly. Among them is the fact that China’s leaders are trying to steer the economy away from exports (which increases the prices of goods for Chinese consumers) and toward domestic consumption.

The government also plans to spend more on health care and pensions. By reducing the amount that people need to save for such purposes, China’s consumers will have more disposal income to spend now.

China’s continuing urbanization is also likely to provide a long-term boost to consumption by producing tens of millions of richer Chinese. As of 2000, only 4% of China’s urban households had attained middle-class status, according to the McKinsey Global Institute.

As of 2012, the proportion of middle class in urban areas was two-thirds. By 2022, 630 million Chinese — or 75% of the nation’s urban population — will be classified as middle class.

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