Facebook Pinterest Search Icon SourcingJournal_horiz Tumbler Twitter Shape photo-camera graph-trend Shape latest-news icon / user

Experts Say China Economy Fears Are Overblown

LESS THAN ONE WEEK AWAY! Join Sourcing Journal & industry leaders at our SOURCING SUMMIT NY on October 19 to discuss the most pressing issues of the day. Your business cannot afford to miss this!

The Met Costume Institute’s current exhibition, “China: Through the Looking Glass,” not only coincides with the centennial of the  museum’s Department of Asian Art, it comes at a time when all eyes are on the country’s shifting economy. As China’s economic growth cooled to 7 percent in the first quarter of 2015—a six-year low—some analysts say the slowdown could encumber the global market.

But Jeffrey Towson, a managing partner of investment firm Towson Capital, and Jonathan Woetzel, a director in McKinsey & Company’s Shanghai office, have argued that there’s really nothing to worry about.

In an excerpt from the upcoming sequel to their The One Hour China Book, they said, “The reality is that Chinese consumers are going to continue to increase in wealth and complexity. And if you’re worried the country’s economic importance is declining, you’re probably looking at its performance the wrong way.”

China’s economy more than doubled between 2000 and 2010—when consumption grew from around $650 million to nearly $1.4 trillion. “Regardless of its relative percentage of GDP (gross domestic product), China’s consumption has been growing faster than just about any other country’s in absolute terms,” the experts said, pointing out that most pessimistic chatter has centered on the country’s currently low share of consumption when the important figure is household income—likely more than $5 trillion a year now, and much higher than that of other developing economies such as Brazil, Russia and India.

Furthermore, discretionary spending (money spent on unnecessary goods) is soaring, as Chinese consumers increasingly move beyond being able to only afford the basics of life. According to McKinsey, annual discretionary categories (read: personal items, recreation, culture, etc.) are forecast to exceed 7 percent between 2010 and 2020, while up to 7 percent growth is expected in semi-necessities (apparel, healthcare, etc.).

Plus, according to China’s National Bureau of Statistics, the average Chinese household saves 40 percent of its income, compared with only 5.2 percent in the U.S. So while newly minted Chinese consumers are spending more than ever, they’re also saving more, which has a deceivingly adverse effect on consumption and, in turn, GDP. “Without much of a consumer-finance system, it’s tough to use debt to hit truly spectacular consumption levels,” the experts noted.

With that being said, consumer spending is “nearly impossible to measure” in such a complicated economy as China’s. “Combining a vague number with other big vague numbers (investment and net exports) is very fuzzy math,” they said. “Until economists start putting uncertainty estimates on their China calculations, relative percentages aren’t worth paying much attention to.”

Related Articles

More from our brands