No demand economy
China’s domestic demand still stuck in the doldrums
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.