Chinese consumers will continue to increase in wealth and complexity, and fears about the country' s slowing economy are overblown, experts said.
Many people who worry about economic rebalancing in China focus only on the low share of household consumption of gross domestic product (GDP) instead of getting the big picture of China's consumer story, said Jeffery Towson, a managing partner of the investment firm Towson Capital, and Jonathan Woetzel, a director in McKinsey's Shanghai office, in a recent article published on the website of McKinsey.
"Regardless of its relative percentage of GDP, China's consumption has been growing faster than just about any other country's in absolute terms," they said, adding that China's consumption grew from around 650 billion U.S. dollars in 2000 to almost 1.4 trillion dollars in 2010.
Given the size of China's consumption, it would "create the largest consumer market in the world" and "have a huge impact on rebalancing," if the consumption share of GDP just rises back to 43 percent in 1995 from 34 percent in 2013, they said.
In other words, the low consumption ratio does not mean China's consumption is weak. On the contrary, China has experienced dramatic consumption growth in the past decade.
Particularly, the rising discretionary spending, which refers to money spent on non-essential purchases, made the experts more optimistic about the country's potential tremendous purchasing power.
"Chinese citizens are now moving beyond being able to only afford the basics of life, and their discretionary spending is taking off," they said, adding that Chinese people "seem to have an endless appetite for everything from entertainment to skiing to caffe lattes."
Discretionary spending in China is expected to grow more than 7 percent a year between 2010 and 2020, faster than spending on actual necessities, which are estimated to grow around 5 percent a year, according to the experts.
What's more important, China's household income is now likely above 5 trillion dollars a year, much higher than household income of other developing economies such as Brazil, Russia and India, they said.
Household income is a more important gauge of a country's future economic performance, as "you can't have consumption without income," they added.
With GDP growth slowing while household income and consumption remain robust, there is no doubt that the consumption share of GDP in China will increase in the future.
"China has an awesome consumer story," they said. "It may be volatile. It's also somewhat unpredictable. But you just don't get a consumer story this good anywhere else."
