The Chinese Consumer: Understanding what they need
Consumer spending in China will more than double in 10 years with a focus on services rather than goods, Morgan Stanley analysts predict in a nearly 200-page report released Wednesday..
The report says that China’s private consumption will reach $ 12.7 trillion by 2030 – about the same as US consumers now spend. That figure also beats Morgan Stanley’s $ 9.7 trillion forecast three years ago. $ 5.6 trillion spent by Chinese consumers in 2019.
This expected growth is fueled by: increased government focus on policies to support China’s domestic economy, increased household incomes, further urban growth, technological changes and demographic shifts, the report says..
Analysts predict that per capita disposable income is likely to double from $ 6,000 per year to $ 12,000 in 2030 as more people get older and stop working..
Notably, Morgan Stanley analysts expect China’s future spending to grow in new categories over the next 10 years as age groups with the highest purchasing power have families or retire..
«Consumption patterns are likely to see significant shifts from young consumers to demand-driven households that will gradually demand an increase in the share of services in consumption», – the report says.
The report says the 35 to 45 age bracket is likely to increase by 25.3 million, in line with Australia’s current population, while the 55 and older age bracket is likely to increase by 123.9 million, or roughly the current population of Japan. The analysts added that the number of other age groups of adults is likely to decline as a result of China’s long-term ban on having more than one child in the family and a general drop in the birth rate..
«We think the average Chinese consumer will be an engine of change, not just a follower of Western consumer trends, the study authors added. – In part, this change will be driven by certain cultural values and consumer needs to maintain those values. These include strong family ties and prioritization of education.».
Morgan Stanley’s forecast of $ 7 trillion in additional spending over the next few years means that private consumption in China is likely to grow by about 7.9% per annum over the next decade, which is «one of the highest levels in the world», the report says.
But uncertainty remains as the global economy struggles to cope with the coronavirus pandemic.
While China’s economy as a whole quickly recovered from the initial shock caused by the pandemic, it took longer for personal spending to recover. Retail sales fell 3.9% last year, despite a 2.3% rise in national GDP. On a monthly basis, sales bounced back to growth in August and rose 4.6% in December from a year ago.
Morgan Stanley analysts have listed several other developments that could prevent the Chinese from spending as much as they predict..
The report says the authorities may aggressively restrict the availability of credit to consumers. The Chinese may also be inclined to save more if increased automation and other technology applications result in higher-than-expected job losses, or if the government fails to significantly improve social security plans to help the population cover large personal expenses..
The report says that Chinese households are mostly saving for education, retirement and health care..