IMF sees a moderate slowing in China’s economy. This is expected, indeed welcome, as China moves to a more inclusive, green, and sustainable growth path.
Global markets are understandably interested in developments in China. It is the world’s second largest economy and a critical source of global demand, especially for commodity producers. Continued healthy growth is thus important for both China and the world. Healthy growth, moreover, likely means a gradually slowing economy. Slowing to the fastest sustainable growth rate possible, which we estimate would be around 6 percent on average between now and 2030. In this case, China would continue to boost living standards at home while providing welcome support to the world economy for many years to come.
China had the largest consumption increase in the world in 2011, 2012, and likely was true in 2013.
In real terms, however, consumption has grown about 9 percent a year for the past decade—a fantastic outcome! This just happens to be less than the 10 percent average growth in GDP.
Two factors are behind the declining share of consumption. First, household saving has been rising. The reasons are complex, and perhaps not fully understood, but pre-cautionary motives are a popular explanation. Households are uncertain about how much health, education, and pension the government will provide, so self-insure by increasing saving. Second, household income has been growing slower than GDP. Same story as above: Household income has been growing fast, but just not as fast as GDP.
As reforms take hold, the end result should be a rise in the consumption to GDP ratio. It happens as a welcome by-product of moving to a more balanced and sustainable growth path, which also leads to a larger service sector, lower household saving rates, and a higher labor share of income. It also means a more inclusive (improved labor market) and environment-friendly (services are less polluting than industry) growth path.
And, since consumption will be growing faster than GDP, it will also be more consumer-based growth.
China’s consumer spending was analyzed by Barnett in 2012
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Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
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