## China: Fastest Growing Consumer Market in the World

_IMF Blog, December 2, 2013_

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**Canonical URL:** [China: Fastest Growing Consumer Market in the World](https://www.imf.org/en/blogs/articles/2013/12/02/china-fastest-growing-consumer-market-in-the-world)

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## Bibliographic details
- Authors: Steven Barnett
- Published: December 2, 2013

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### Context and timing
- Author: Steven Barnett  
- Date: December 2, 2013  
- Seasonal references: Cyber Monday (United States), Singles Day in China (November 11 or 11/11)

### Consumption levels and growth
- China had the largest consumption increase in the world in 2011 and 2012, and likely to be true again in the year of publication.
- The chart (referenced) shows:
  - US$ increase of consumption (bars) and real consumption growth (dots).
  - China has been “tops for the past few years” on the US$ increase metric and has “had the fastest real growth in consumption.”
  - Exchange rate appreciation contributes to the large measured increase in US$ for China, and contributes to the negative bar for Japan that year.
- In real terms, consumption has grown about 9 percent a year for the past decade.
- GDP has grown about 10 percent on average over the same period; thus consumption growth, while strong, has been slightly below GDP growth.
- Consumption as a share of GDP has fallen by some 10 percent of GDP over the past 10 years or so.

### Reasons for declining consumption share
- Household saving has been rising; precautionary motives are a popular explanation.
  - Households are uncertain about how much health, education, and pension the government will provide, so they self-insure by increasing saving.
- Household income has been growing slower than GDP; household income has been growing fast, but “just not as fast as GDP.”
- Both factors (higher saving and slower household income growth relative to GDP) contribute to the declining consumption-to-GDP ratio.
- These factors are discussed further in “Sino-Spending” (referenced).

### Moving to consumer-based growth — supply-side framing
- Rebalancing toward more consumer-based growth means boosting the consumption to GDP ratio.
- Consumer-based growth can be told from the supply-side: expanding the service sector is critical.
  - The service sector, while growing, is smaller in China in terms of output and employment than comparator economies.
  - As the service sector takes a larger share of the economy, household income (and thus consumption) will naturally rise as a share of GDP.
  - Advances in the service sector could lower prices for many consumer services and thereby increase sales (consumption) — see IMF Working Paper (referenced).

### Policy reforms to boost consumption
- Strengthen the financial sector:
  - Would help finance expansion of the service sector, which currently has difficulty accessing credit.
  - Would boost household income directly as new financial products boost investment income.
- Social security reform:
  - Could help reduce precautionary saving.
- Reduce payroll tax burden:
  - Payroll taxes are described as “very high and regressive” — employee plus employer social contributions often exceed 40 percent of wages.
  - Reducing contribution rates would boost labor income directly through lower taxes and indirectly by boosting employment.
- Other reforms from the recent Third Plenum that will help lift the consumption ratio:
  - Higher resource taxation.
  - Labor market reforms.
  - Land reform.
  - These can boost household income and lower household saving—either directly or indirectly by shifting the economy more toward services.

### Expected outcomes and implications
- As reforms take hold, the consumption to GDP ratio should rise.
- This shift is a by-product of moving to a more balanced and sustainable growth path, producing:
  - A larger service sector.
  - Lower household saving rates.
  - A higher labor share of income.
  - More inclusive outcomes (improved labor market).
  - A more environment-friendly growth path (services are less polluting than industry).
- If consumption grows faster than GDP, the result will be more consumer-based growth.

*Source: China: Fastest Growing Consumer Market in the World — Steven Barnett (December 2, 2013)*

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## Content in this bundle

- **中国：世界上增长最快的消费市场**
  - [中国：世界上增长最快的消费市场 (Markdown version)](/external/chinese/np/blog/2013/120213c.pdf.md){rel="alternate" type="text/markdown"}
  - [中国：世界上增长最快的消费市场 (PDF)](/external/chinese/np/blog/2013/120213c.pdf){rel="external" type="application/pdf"}

---

## References

- [https://www.imf.org/wp-content/uploads/2013/12/china-fastest-growing-consumer-market-in-the-world.jpg](https://www.imf.org/wp-content/uploads/2013/12/china-fastest-growing-consumer-market-in-the-world.jpg)
- [Sino-Spending](http://www.imf.org/external/pubs/ft/fandd/2012/09/barnett.htm)
- [IMF Working Paper](http://www.imf.org/external/pubs/cat/longres.aspx?sk=41073.0)

_Source: https://www.imf.org/en/blogs/articles/2013/12/02/china-fastest-growing-consumer-market-in-the-world_