No de­mand econ­omy

China’s do­mes­tic de­mand still stuck in the dol­drums

Finweek English Edition - - Economic trends & analysis - GARTH THE­UNIS­SEN gartht@fin­week.co.za

AL­THOUGH CHINA’S econ­omy is grow­ing at over 10% a year, most of this growth re­lies on cap­i­tal in­vest­ment and ex­ports.

By con­trast, house­hold con­sump­tion ac­counts for just 38% of GDP com­pared with a mas­sive 71% in the US. Even SA’s house­hold con­sump­tion level at 63,66% of GDP makes the Chi­nese fig­ure look pedes­trian.

A good bench­mark, says Stan­dard Bank econ­o­mist Elna Mool­man, is for house­hold con­sump­tion to ac­count for about two-thirds of GDP – even in a de­vel­op­ing coun­try.

For­tu­nately, the Chi­nese do seem to be loos­en­ing their purse strings. Morgan Stan­ley notes that year-on-year growth in Chi­nese re­tail sales has climbed from 5% in Jan­uary 2004 to 17% in Septem­ber last year. In dol­lar terms, Chi­nese re­tail sales are also grow­ing and amount to over 24% of US re­tail sales com­pared with around 14% in 2003.

The rea­son we should care is that the less re­liant China is on ex­ports, the less vul­ner­a­ble it will be to a global eco­nomic slow­down – and with it the for­tunes of com­mod­ity ex­porters such as SA, which sell vast quan­ti­ties of pri­mary prod­ucts to China each year.

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