China’s Shoppers May Take 10 Years to Step Up

Chinese policymakers are gung-ho to transition their economy away from investment and toward consumption, but that may not happen for another decade, new data shows.

“Without a substantial intervention, we believe consumption’s share of China’s economy is unlikely to rise substantially before 2025,” The Demand Institute, a non-profit organization operated by The Conference Board and Nielsen, said in a new report.

Private consumption as a share of gross domestic product (GDP) will average 28 percent from now until 2025, the think-tank said.

To be sure, the mainland has long underperformed the global average in this regard as Beijing previously focused on export-led growth.

Consumption as a share of GDP was 37 percent last year, according to the Brookings Institution, compared with around 70 percent in the U.S. and 60 percent in fellow emerging market, India.

The indicator has only recently started to stabilize in recent years. Consumption relative to GDP declined 48 percentage points from 1952 to 2011, one of the longest and largest drops of any nation on record.

Based on an examination of 167 countries between 1950 and 2011, the report found that nations with similar economic characteristics to China saw consumption remain flat relative to GDP for a considerable period following previous declines.

China’s desire to rebalance its economy stems from the need to avoid the dreaded “middle-income trap,” in which developing countries are unable to graduate into high-income countries after achieving a certain level of per capita GDP.

While many economists believe the economic transition is already underway, albeit at a gradual pace, they also expect it will take a while before consumption’s share of GDP spikes higher.

CNBC

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