NCPA - National Center for Policy Analysis


August 8, 2008

Faced with the challenges of domestic growth in the United States and Europe in the years ahead, things would look a whole lot worse without the Chinese consumer, says Zachary Karabell, president of River Twice Research.

For example:

  • In the past two years, the average gross domestic product per capita in China has passed $2,000, and now is close to $2,500.
  • That average lumps together 250 million affluent and "rising affluent" urban residents with another 500 or 600 million people living in rural areas (and whose income may or may not exceed a dollar a day). Another several hundred million more Chinese are somewhere in between.

That core of perhaps 250 million Chinese consumers -- especially in coastal cities -- actually earn closer to $10,000 a year on average.  Given modest living expenses, they are left with considerable disposable income.

They are eager to spend this income.  True, China has one of the higher personal savings rates in the world -- in excess of 40 percent. But this doesn't reflect a wariness to spend as much as the absence of things to buy, places to put money other than state-bank savings accounts, and concern about health care costs.  That is now changing, says Karabell: 

  • Chinese consumer spending is currently at about $2 trillion, still barely a fifth of U.S. consumer spending.
  • But the gap is closing: Whereas U.S. spending is growing by about 2 percent a year, Chinese consumer spending is growing by 20 percent a year.

For many global companies, the rise of the Chinese consumer is the only thing standing between them and a decline in their business, says Karabell.

Source: Zachary Karabell, "Thank God for the Chinese Consumer," Wall Street Journal, August 8, 2008.

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