A sustained decline in Chinese consumption will affect global growth
It is very unlikely that any other country could step in to drive consumption, at least not in the next decade
spending could increase by another $2 trillion by 2020, putting it at around half that of the US. Chinese consumers would be more relevant to the global economy than anyone except Americans.
Looking ahead to the 2021-2030 period, an annual growth rate of 8% (compared to the 10% rate of the past decade), and a gradual increase of consumption to 50% of GDP, would translate into Chinese consumer spending of $18.4 trillion per year by 2030. In this scenario, Chinese consumption would surpass that of the US in dollar terms.
The question at the start of 2019, then, is what it will mean for the global economy if this scenario does not play out. If Apple’s recent guidance points to an across-theboard, indefinite reduction in Chinese consumption, will American consumers be able to serve as the sole engine of the global economy for yet another decade? If not, could any other country fill this role, even partially?
The last 40 years have taught me never to write off the US. It is possible that American consumers will keep plugging away, one way or the other. Yet consumer spending is vulnerable to a number of factors, including inflation, higher borrowing costs, and pressures on the US to increase savings. Besides, the risk of relying too much on US consumers should be well known by now. As we saw in 2008, when America sneezes, the rest of the world catches a cold.
It is very unlikely that any other country could step in to drive consumption, at least not in the next decade. The larger developed economies are all experiencing slow growth, and their consumer spending has never mattered much for the rest of the world anyway.
Emerging economies such as India, Indonesia, and Nigeria certainly could make up for declining US or Chinese consumption 20 years from now; but none is in a position to match the growth of Chinese consumption today, or even over the course of the next decade. For its part, India’s nominal GDP could exceed $3 trillion by 2020, which would make it the world’s fifth-largest economy; but it will take far longer for Indian consumers to match the spending power of their Chinese counterparts.
Can the Chinese consumer be resurrected?
I am cautiously optimistic. Chinese policymakers will need to consider providing more direct fiscal support, as well as reforming the hukou (household registration) system, which currently denies rights to migrant workers from the country’s rural areas. With more economic security, this significant cohort of the country’s population will be more likely to save less and consume more. To be sure, these policies will place additional demands on the Chinese leadership. But without them, we could all find ourselves worse off.