A Golden Age for China’s Consumption
A fast- growing and increasingly open Chinese consumer market is making great contributions to the world rld economy.
With socialism with Chinese characteristics entering a new era, the Chinese economy has ushered in a new developmental phase. One essential feature of the new phase is the country’s economic shift from high-speed growth to high- quality development. To realize high- quality development, improving demand patterns and steering the ever- growing impact of consumption on the economy are greatly important. It is not a stretch to say that China’s economy has arrived at a consumption- driven era. This era features at least three major traits: First, consumption has become an important impetus for China’s economic development. Second, China’s consumption is being upgraded. Medium-highend consumption is rapidly rising and new consumption patterns are mushrooming. Third, China’s consumption has become a new driver for global economic growth.
Biggest Economic Driver
From the perspective of demand, the three drivers of economic growth are investment, consumption, and exports. In a mature economy, consumption is the major driving force for economic development and contributes about 70 percent of total economic growth. Insufficient consumption had been a persistent problem for China. After the 18th National Congress of the Communist Party of China (CPC) in 2012, China’s consumption started to take off and gradually surpassed investment to become the biggest economic driver. Consumption contributed 47 percent of China’s economic growth in 2013, lower than that of investment. However, since then, the contribution of consumption to the economy has been consistently increasing. In the first half of 2018, consumption contributed as much as 78.5 percent of China’s economic growth.
Currently, China’s consumption rate is also steadily rising. The consumption rate is the ratio of final consumption expenditures to a country’s total GDP and serves as an important indicator to assess consumption’s role in a country’s economic development. In the early days of China’s reform and opening up that started in the late 1970s, the country’s consumption rate
witnessed a decline, largely due to a drop in household consumption rate. In 1983, the country’s final consumption rate was around 67 percent. The figure dropped sharply in the years to come. It slightly rebounded between 1994 and 2000, but went down again between 2000 and 2010. After 2010, the figure picked up again and reached 53.6 percent in 2017.
Looking to the future, certain elements will continue to raise the consumption rate and make consumption the primary driver for China’s economic growth.
First, ever-increasing income will promote growth of consumption. In recent years, the growth rate of Chinese residents’ income has risen steadily, continuously surpassing that of the economy. The country’s national income per capita is predicted to exceed US$10,000 soon. At the same time, China has entered a period of narrowing the income gap. More balanced income is conducive to consumption growth. Since the 18th CPC National Congress, China has been investing more in poverty alleviation projects. The millions who are lifted out of poverty will become new engines for consumption growth.
Second, China’s ongoing urbanization process will substantially promote consumption. At present, room for China’s urbanization is still huge. In the next 10 years, a total of 130 million rural residents will be relocated to cities, which is expected to increase consumption by two trillion yuan ( US$288.5 billion). A large migrant population can be found in China’s urban areas, who also promote consumption as a group.
Third, China’s ever-improving social security system will free up more household savings to be funneled to consumption. Previously, the country featured a high saving rate and a low consumption rate. Most Chinese residents save money with the primary purpose of covering possible future medical expenditures or using the money as pension. Since the country has been vigorously improving its social security system in recent years, consumption is expected to go up with the expansion of the social security network and the improvement in social security services.
Fourth, preferential policies have created a sound environment for consumption upgrades. Since the 18th CPC National Congress, China has been attaching greater importance to consumption. The report delivered at the 19th CPC National Congress in 2017 emphasized that China would improve systems and mechanisms for stimulating consumer spending and leverage the fundamental role of consumption in promoting economic growth. In 2018, the Chinese government issued Suggestions onimproving Systems and Mechanisms for Stimulatingconsumptionto Promote Spendingpotentialsof Residents and Implementation Planfor Improving Systems and Mechanismsforstimulating Consumerspending(2018-2020) in succession.
China’s Consumption Fuels Global Growth
China is now entering a new round of consumption upgrading, and its consumption is exhibiting new features. These new features include expenditures related to livelihood growing slowly while spending on development and leisure rising quickly. Consumption in services has witnessed fast development. The quality of Chinese people’s spending is improving, shifting from low-medium to medium-high-end consumption. At the same time, new patterns of consumption have developed fast, with internet consumption, mobile consumption, green consumption, sharing consumption and credit consumption all realizing sound growth.
Rapidly growing Chinese consumption will promote sustainable development of the Chinese economy, make greater contributions to the world economy, and become an important new driver for global economic growth.
Chinese consumption’s contribution to the world is primarily made through the country’s imports. Since 2009, China has been the world’s second largest importer of goods for nine consecutive years. The country is also the fastest- growing major market for imports around the world. Take the services trade as an example: From 2013 to 2017, the cumulative services imported by China reached US$2.1 trillion with an annual growth rate of 10.7 percent, far exceeding its exports’ 2.5 percent growth rate.
China serves as the largest importer for many countries and of many commodities globally. It is the largest importer of oil, agricultural products, and bulk commodities in the world. It is also expected to become the world’s largest natural gas importer in 2018. China’s imports fuel the development of many resource-based economies, and the Chinese market is tremendously important to these countries.
Today, trade protectionism is rampant around the world. Some countries have locked their domestic markets through various measures. Rather than shifting towards protectionism, China is further opening, especially its consumer market, to the outside world. Chinese President Xi Jinping has pledged on many occasions that China will import commodities and services worth US$10 trillion in the next five years and make major contributions to the world’s stability and growth. Held in Shanghai from November 5 to 10, the China International Import Expo is the first state-level expo with imports as its central theme. It is sure to provide better means for various economies to share the fruits of China’s fast-growing consumer market.