The economy of the United States is led by consumption, which is 70.5% of GDP. Will China begin to see a greater portion of its GDP spent on...
The economy of the United States is led by consumption, which is 70.5% of GDP. Will China begin to see a greater portion of its GDP spent on and driven by consumption? The country is at a turning point, as the number of individuals with the capital and desire to spend on consumer products grows. Wages have risen by an average of 12% every year over the last five years, providing the necessary income and growth for higher levels of expenditure. And the richest 1% in China hold from $2 trillion to $5 trillion in liquid wealth and property that could be spent on high-end luxury products such as cars or jewelry. Greater consumption in China could help struggling economies in the developed world hoping to increase their exports. In fourth quarter 2011 China grew by 9.2%, a relatively positive number, given global economic challenges. However, for the first time since 2001, over 50% of this growth was driven by consumption, both public and private. Investors have begun tailoring their investments toward this new source of revenue. In 2010 only 47% of foreign direct investment was spent on manufacturing, a decrease of 19% from 10 years ago. At the same time, there has been a massive increase in investment focused on retail directed towards Chinese consumers — a spike of 40% over the last five years, indicating that corporations believe there will be a strong market. Major corporations, ranging from consumer-staples manufacturers such as Proctor & Gamble to high-end luxury-goods makers such as Tiffany & Co., have latched onto this trend in order to drive revenue growth. As Chinese consumers begin to show their colors, companies poised to take advantage of this market could reap the rewards. The opportunities also exist for banks such as Citibank, which has become the first international bank to receive approval to issue credit cards in China. It is possible that the United States is living beyond its means, and that consumption-led growth is unsustainable. Should China stem and control its expansion into consumption or allow it to become a source of revenues, at least in the short term? http://www.forbes.com/sites/kenrapoza/2012/02/03/the-rise-of-the-chinese-consumer/ http://www.mckinsey.com/Features/How_China_is_innovating http://www.economist.com/node/21543176
