Chinese consumerism will shape the world’s economic future
China’s economy, boosted by a wave of growing middle class wealth, is undergoing a significant shift in consumption, driven by a new generation of young, prosperous and independent consumers who are upwardly mobile, less price-sensitive and determined to display their worldliness through well-considered consumption.
Today, China’s economy is still heavily dependent on investment for growth – consumption accounted for only 50 per cent of GDP last year, significantly less than in the United States at more than 80 per cent or even India, where the figure exceeded 70 per cent.
The Chinese government is now actively encouraging more consumers to spend. Consumption in China will account for 60 per cent of GDP by 2020, according to IDC’s report, adding just under $1 trillion of consumer spending even at today’s levels.
A massive push to urbanise will propel tens of millions of people and billions of yuan into the consumption equation. The eastern region is currently home to the most affluent consumers, particularly the tier-one cities of Beijing, Shanghai, Guangzhou and Shenzhen. It has the highest per capita retail consumption in China since it has the country’s highest average wages as well as robust spending by tourists.
The eastern region’s position will not be shrinking, but the geographic centre of China’s middle class is also shifting because less developed inland provinces have grown faster than rich coastal regions and now account for 49 per cent of GDP.
The growth of China’s middle class has unleashed a wave of aspirations – quality of life, the best education, a secure retirement. Retail investors will seek a more diverse range of wealth management products. Other areas that present opportunities as China’s consumer society develops include tourism, luxury brands and technology.
Emerging trends in trade between the Middle East and China point to an array of mutual benefits as consumption surges in these faster growing markets. The bulk of Middle East exports to China, the world’s largest energy consumer, will continue to be driven by oil. However, trade from the Gulf is expanding into other commodities and consumer goods underscoring the opportunities presented by increased affluence and growing demand among Chinese consumers in the Mainland.
For example trade between China and the UAE, expected to reach US$100 billion by next year, covers a wealth of sectors. China exports machinery, mechanical appliances and manufactured goods to the UAE while it imports plastics, textiles and vegetable fats as well as aviation services and tourism.
China already has the world’s largest number of overseas tourists and the largest proportion of tourist spending, and is still far from reaching its full potential. Chinese tourists made an estimated 98 million trips abroad last year, spending more than $120bn on travel, while China also had 3.3 billion domestic tourists, spending 2.6 trillion yuan (Dh1.52tn) around the country.
We expect outbound travel from China to reach 130 million by next year, and possibly top 200 million by 2020, three times the current number of departures from the United States.
We expect to see more independent travellers spread out from traditional tourist spots to niche markets. Their top preferred destinations included Hong Kong, Europe, the US and Japan.
But Chinese tourists are also on the rise in the UAE, with 275,675 visiting Dubai last year, an annual growth rate of 11 per cent.
With digital technology becoming a part of everyday life, we see a new trend of China’s consumption boom moving to the web. China has become the world’s biggest e-commerce market with a spending forecast to reach $540bn next year.
As the world’s biggest manufacturer and consumer of smartphones, it will soon be the largest mobile-commerce market. These all play a role in increasing domestic consumption that will drive further development and economic growth.
The future of the global economy will be profoundly shaped by China’s push towards consumerism. Local and multinational firms in China need to possess the ability to generate sought-after consumer experiences and be agile to maintain the pace with rapidly changing trends.
Richard Li is the head of retail banking and wealth management at HSBC Bank China
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Updated: May 5, 2014 04:00 AM