China’s consumers are better understood when looked at as two
distinct classes: urban consumers and rural consumers. The urban
households are much richer than their rural counterparts and consume three times
more. The richest 20% of China’s urban households is comparable to the
economic size of South Korea or Taiwan.
China’s rural sector is a sizeable consumer market on its own. The percapita
income of rural households has grown more slowly than that of urban
households, especially after China’s WTO accession in 2001. Furthermore,
ongoing urbanisation is leading to a reduction in the size of the rural sector. Still, at
current income growth rates, China’s rural sector will reach by 2020 a size
equivalent to India as well as income levels and consumer patters similar to those
in lower to middle income Asian countries.
China could overtake Japan as the world’s second largest consumer
market over the next decade. China’s private consumption today is only
around 16% of US consumption and 56% of Japan’s. But China’s strong GDP
growth outlook bodes well for Chinese consumers, since it goes together with a
rise in per-capita income and the attainment of consumption thresholds (for
instance, the purchase of a car). Moreover, there is an array of active policies
oriented towards increasing disposable income and rebalancing China’s growth
model towards domestic demand. Greater pension and healthcare coverage in
urban and rural areas is already an explicit goal. Further initiatives, such as giving
households greater opportunities to grow their savings via more diversified
financial products, would be welcome. All these efforts are conducive to enhancing
the share of private consumption in China’s economy. This would not only serve
China well in its rebalancing quest but also provide the world with an additional,
more sustainable engine of growth.