Last Updated: June 22, 2018
The Chinese economy is volatile, which can make it an intimidating place to do business. In fact, one Chinese official told CNN that “market volatility will be part of the new normal” in China. Enterprises often embrace the misconception that such volatility inhibits meaningful and accurate forecasting and business planning. But with a projected $5 trillion increase in Chinese household spending power by 2025, economic growth in China is assured and this isn’t a market you can afford to dismiss.
Let’s look at the facts. According to the Demand Institute:
- In the next 10 years, discretionary income in China is expected to increase 70%.
- By 2025, Chinese consumers will spend $6.4 trillion annually.
- China has a working population of 770.4 million. Currently, only 11% are considered middle class, meaning we’ve barely glimpsed the economic power of this burgeoning economy.
- From 2006 to 2014, shipping in China increased tenfold – from 1 to 10 billion packages – showing increasing opportunity for e-commerce.
- Spending on entertainment and recreational activities like travel, dining out, sports and gaming is only 9.2% in China – much lower than other developed nations – meaning this category is poised for rapid growth as incomes rise.
For perspective, let’s look at similar statistics for the United States:
- According to the Congressional Budget Office, discretionary spending in the U.S. is actually expected to decrease in relation to GDP in the next 10 years.
- Working population: 146 million
- Recreational spending: 17.3%
Recent research published by Goldman Sachs unveiled seven key desires of the Chinese consumer: looking more beautiful, eating better, a better home, mobility, having fun, well-being and luxury items. The market opportunity in China is too persuasive to ignore, and experts like PwC and McKinsey&Company agree that success here is achievable. By turning comprehensive data into meaningful insights and forward-looking analysis, companies will be poised to capitalize on economic growth in China.
Where to find positive economic growth in China for 2018
The modern Chinese economy was built based on its competitive advantage in manufacturing. But following wages increases of roughly 80% since 2010, it has experienced a consistent year-over-year deceleration due to an exodus of manufacturers. In the past year, the slowed growth has finally stopped. In 2017, the Chinese economy experienced accelerated growth for the first time in seven years, but this acceleration is not because manufacturing is having a resurgence. In fact, many areas of manufacturing continue to fade in importance in China for a number of reasons.
However, even as the death knell tolls for low-end manufacturing, this is ultimately a positive sign for economic growth in China for 2018 because it signals that China’s economy is maturing. The fact that gross domestic product (GDP) stabilized (even improved) despite manufacturing weakness means that China is able to stand on its own two feet based on services and consumption like a mature economy. The manufacturing crutch is being slowly pulled away, and China is still standing. To read an in-depth perspective on the future of China’s economy, access the full Forbes article here.
Entering 2018, While the Chinese economy used to be manufacturing-based, it is now consumer-based. As the economy in China continues to mature in the coming year, we can expect an overall positive outlook. China has experienced consistent wage growth while the cost of living has stayed relatively low, helped along by the strong yuan. As a result, consumer sentiment is up. Consumers are feeling confident, and positive consumer sentiment indicates healthy future spending.
Webinar: China’s Economic Outlook for 2018
In this webinar, Prevedere economist Andrew Duguay will discuss the evidence for a positive outlook on China. He will explain why the Chinese economy has reached an inflection point, and based on current economic indicators, is poised for healthy economic growth over the coming year. Get access to the full webinar recording >>