Boosting middle-class consumers will help China keep growing, defeat US trade pressure

Recent indicators show consumption has become a more powerful engine of China’s economic performance. The consumption boom is likely to reduce the country’s dependence on external markets, giving Beijing more leeway to play hardball in trade friction with Washington.

China’s retail sales grew 9.4 percent year-on-year in the first half of 2018, according to official data. Consumer spending contributed 78.5 percent of economic growth in the January-June period, an increase of 14.2 percentage points from the same period last year.

China is in the midst of a major overhaul aimed at rebalancing its economy away from exports and investments toward consumption. As China’s economic transition continues, some US observers still view the country as an export-oriented economy, and some of them provide advice on economic issues to assist Washington in making China policy. However, the numbers show the US market may be less important to China’s economy than those people believe. The Chinese economy expanded 6.7 percent in the second quarter of 2018. Trade friction with the US has so far done little to dent economic growth in China. Even if US President Donald Trump announces new tariffs to reduce the presence of Chinese products in the US, the growth of Chinese domestic markets will probably offset any resulting losses. China has the ability to maintain macroeconomic stability even in the worst-case scenario of a trade conflict with the US.

Sino-US trade friction may have unexpected side effects, as Trump’s trade policy prompts China to rebalance its economy toward a more consumption driven growth path. Economic transition is a painful process, but the growth of China’s domestic market may offer more opportunities for Asian exporters, building up China’s prestige and curbing Washington’s influence in Asia.

China is moving in the right direction but more efforts are needed to boost consumption and domestic demand among middle-class households. The explosive growth of China’s middle class has generated a boom in business opportunities, but a variety of complex factors such as high housing prices are having a negative effect on consumer spending.

How to increase consumption of its fast-growing middle class is the question that remains for China.