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China’s consumers are a major global opportunity Phenomenal growth opportunities in Chinese real estate and logistics

China Watch

Since China’s economic take-off in 2000, investment has driven GDP whilst the contribution of consumers’ spending diminished. This is common in export-oriented economies, but China’s low private consumption has continued for over a decade, setting it apart.

There are many factors behind this: the uncertainty created by the transition from full-blown communism caused households to save, not spend; To generate rapid growth on its own terms, the Chinese authorities prioritized exports, including urban infrastructure improvements to support hyper-efficient manufacturing; the post-GFC stimulus was, in retrospect much too strong, leading to a wave of over investment.

China is shifting gears for future growth and will become a consumer-led economy in little more than seven years (Figure 1). Inflation-adjusted retail sales increased by 10.5% in 2017, up 50 bps from the previous year. Consumer confidence is near the all-time high. New light-vehicle sales were up 11% in the year to April. We hear a lot about China’s “debt mountain,” less about the growing power of the consumer economy. A number of forces are at work creating this change:

  • Policy has changed. The government has long recognized that its initial growth strategy has run its course. Excess investment in production capacity has driven return on capital to low levels. The continued flow of low cost goods from China has irritated its trading partners, particularly the United states. More strategically, China wants the yuan to become a global reserve currency and for that, its capital account needs to be opened and the yuan freely traded. Were the capital account to be opened right now, money would flow out of China because of the high risk and low returns currently on offer in the Chinese economy. The economic model had to change, and it is.
  • The Chinese are becoming middle class. This rising middle class is anticipated to comprise 65% of total Chinese households by 2027. With higher education, income and different consumer preferences from previous generations, this population will largely define the new consumer economy, as already reflected in China’s surging food, fashion and auto industries.

Source: China National Bureau of Statistics & CBRE Research, 2018.

China Watch

About Richard Barkham

Richard Barkham

Richard is a specialist in macro and real estate economics. He joined CBRE in 2014 as Executive Director and Global Chief Economist. Prior to taking up his position with CBRE Richard was a Director of Research for the Grosvenor Group an international business with circa $10bn of capital under management in real estate. He was also a non-Executive Director of Grosvenor Fund Management where he was involved in fund strategy, risk analysis and capital raising. Richard is the author of two books and numerous academic and industry papers. In 2012 he published Real Estate and Globalisation (Wiley Blackwell, Oxford), which explains the impact on real estate markets of the rise of emerging markets such as China and Brazil. He has extensive consulting experience and is a Visiting Professor in the Department of Construction and Project Management at the Bartlett School, University College London. He holds a PhD in economics from the University of Reading where he taught, in the Departments of Economics and Land Management, between the years of 1987 and 1998.​​​

Articles by Richard Barkham

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