Shoppers walk past vendors at stalls in the Zhenbai Agricultural Produce Market in Shanghai, China.(Photographer: Qilai Shen/Bloomberg)

Why China's Consumers Are Hottest Global Economic Force

(Bloomberg View) -- It’s way past time to stop calling China the world’s factory.

The country is increasingly the world’s consumer. Forget the old investment and export-focused growth model. Even more important is the changing nature of consumption, which no longer revolve around staples: Increasing sums are being plowed into movies, tourism and health care. Investors ignore this seismic shift at their peril.

Chart 1

Why China's Consumers Are Hottest Global Economic Force

According to the latest official data, China’s final consumption accounted for 63.4 percent of gross domestic product (Chart 2). Household consumption experienced exponential growth and climbed to $4.5 trillion (Chart 3). Retails sales have been growing at healthy pace of about 10 percent. Spending on Singles’ Day this year (Nov. 11), is impressive, registering $25 billion, almost double U.S. Black Friday online sales of $14 billion (Chart 4).

Chart 2

Why China's Consumers Are Hottest Global Economic Force

Chart 3

Why China's Consumers Are Hottest Global Economic Force

Chart 4

Why China's Consumers Are Hottest Global Economic Force

The details are revealing. Chinese consumers are becoming older and richer, generating an upgrade in the products they purchase.

First, there has already been a shift from necessities to choice goods. Apparel and staple foods are declining as a share of consumption, while health and green foods, smartphones and tablets, sporting goods and equipment, trendy and personalized household products, vehicles, and beauty products account for increasing shares of the pie.

Second, low-end mass products are out and high-end premium brands are in. Chinese favor foreign brands, due to a lack of trust in domestic products that are prone to counterfeiting or knockoffs. They regard expensive foreign brands as a symbol of wealth and social status.

And third, consumers will spend less on a relative basis on physical goods and more on experiences and services, including health care, box office, education, concerts, gyms, financial planning and tourism (both domestic and overseas). Chinese are traveling abroad more often, benefiting not only many peripheral Asian countries, but developed countries like Australia, the U.S., Canada, New Zealand and European Union members.  

All of this will increasingly take place via omni-channel shopping, including mobile, online and offline shopping. The recent fast adoption of internet and mobile-phone technology leapfrogged some developed countries. Shoppers attach great importance to comparing prices, reading reviews and relying more on recommendations from social media, thanks to a lack of trust in merchants. They are also more demanding and require more hand-holding.

As China’s expansion increasingly depends on consumption, its growth will be not only more internally driven, but also less resource- and credit-intensive. Imports of premium goods and services will increase. This market will be more and more attractive to multinational firms and investors.

One significant byproduct: China’s politically-sensitive trade surplus will continue to shrink and the current account surplus, the broadest measure of capital flows, might contract even more. This, in turn, may exert downward pressure on the yuan.

These trends are in their infancy. There is plenty of room to run, especially as China’s population becomes even more urbanized. As the outperformance of the Global X China Consumer ETF shows, investors buy this story.

Chart 5

Why China's Consumers Are Hottest Global Economic Force


This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tracy Chen is a portfolio manager at Brandywine Global Investment Management.

To contact the author of this story: Tracy Chen at

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