Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 366

Three reasons China could become the world’s leading consumer

La Samaritaine department store in Paris that was founded in 1870 is of such majestic art deco and art nouveau styling it was declared a national monument in 1990. The building, nonetheless, was closed in 2005 because it was ruled unsafe. Since then, e-retailing has battered department stores the world over and many have closed. Yet La Samaritaine is set to be reopened, although that is delayed until next year due to the coronavirus.

Chinese shoppers love luxury brands

And when La Samaritaine does reopen, expectations are that it will achieve the buoyant sales enjoyed by other household-name department stores in Paris. Why the optimism about old-style retailing? Chinese shoppers. They are keen buyers of the 75 luxury brands offered by LVMH, the French icon that owns La Samaritaine.

The spending power of Chinese consumers has reached well beyond Paris. Their outlays drove 31% of the growth in global household spending from 2010 to 2017. The influence of Chinese consumers is a tribute to the economic reforms launched from 1978 in the country of 1.4 billion people. After four decades of uninterrupted growth averaging about 10% a year until the virus-induced decline in the first quarter of this year, China’s GDP is 30 times its size of 1980 while GDP per capita is 24 times higher.

The result is that China now has middle and upper classes of about 400 million people who are wealthy enough to make the Chinese the world’s biggest spenders on luxury goods and foreign travel, to name just two segments. The mainly urban-based spenders could soon devote more to movies than Americans. They are valuable customers the world over to education providers and farmers and many more industries. They have prompted household-name companies, from Apple to Walmart, to open outlets in China. They are, of course, powering local giants.

As most economies expand over time, the fact that China’s population is 4.2 times larger than the US’s 330 million tally indicates that the Chinese could soon enough overtake Americans as the world’s ‘consumer of last resort’. They will become the biggest and most reliable single driver of the world economy. The gap? US household spending totalled US$13.6 trillion in 2018 (to comprise 68% of US GDP) compared with US$8.4 trillion for China (38.5% of that country’s output).

Leadership depends on rate of modernisation

While the emergence of the Chinese as the world’s biggest consumers seems almost preordained, given they need consume only about 25% of what Americans do, the speed of the ascension is a more open question (virus-triggered disruption aside). China’s challenge is that few countries make the transition from developing to advanced status because economic models based on low-end manufacturing exports and cheap labour can’t easily make this leap.

To surmount this challenge, Chinese policymakers must modernise their economy even more. They are attempting to do so by, first, seeking to boost productivity to bolster living standards and, second, by ensuring that consumption becomes a bigger driver of this expanding economy. These fixes are likely to succeed for three reasons.

First, China has easy productivity gains within reach because much of the economy is still rudimentary.

Second, recent GDP growth (helped along by exports and investment) of an average of 6.6% per annum from 2014 to 2019 is providing economic momentum. Past growth, for instance, has created jobs in cities that encourage urbanisation that prompts investment to expand city facilities, and so on.

Third, government-driven increases in wages and more spending on social security are boosting consumption by increasing people’s spending power and reducing their need to save.

The result is China’s middle and upper classes are likely to expand briskly in coming years. Before too long, the Chinese will overtake Americans to become the key single determinant of the world’s economic health.

The US consumer will still be crucial to the world economy and global financial markets, of course. China’s consumption could take far longer than expected to overtake the US’s because things can go awry with any economy at any time, especially one with China’s debt at 260% of GDP. The rise of the Chinese consumer comes with disadvantages for the world and China.

One drawback for the world is that China’s government is willing to weaponise its consumers to achieve political goals. The risk for Beijing of a rising middle class is that history shows the nouveau riche are more likely than the poor to demand political reforms though there’s no sign of unrest in Mainland China. The growth in the middle and upper classes, by default, means that inequality is rising in China, a recipe for political disgruntlement. Even with swelling middle and upper classes, China is still a poor country when measured on a per capita basis (average annual income of US$7723 in 2018) because it contains hundreds of millions of poor.

But that’s more or less the point. Even if China expands at only sluggish rates, the GDP per capita is likely to rise enough in coming years to double the number of Chinese considered middle class.

As such, the next stage of China’s industrial revolution is geared to transform the world economy.

 

Michael Collins is an Investment Specialist at Magellan Asset Management, a sponsor of Firstlinks. This article is for general information purposes only, not investment advice. For the full version of this article and to view sources, go to: https://www.magellangroup.com.au/insights/.

For more articles and papers from Magellan, please click here.

 


 

Leave a Comment:

RELATED ARTICLES

Welcome to the grey war

Concerns about China's rise to power seem overblown

A pullback in Australian consumer spending could last years

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Economy

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Investing

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Property

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Shares

ASX reporting season: Room for optimism

Despite mixed ASX results, the market has shown surprising resilience. With rate cuts ahead and economic conditions improving, investors should look beyond short-term noise and position for a potential cyclical upswing.

Property

A Bunnings play without the hefty price tag

BWT Trust has moved to bring management in house. Meanwhile, many of the properties it leases to Bunnings have been repriced to materially higher rents. This has removed two of the key 'snags' holding back the stock.

Investment strategies

Replacing bank hybrids with something similar

With APRA phasing out bank hybrids from 2027, investors must reassess these complex instruments. A synthetic hybrid strategy may offer similar returns but with greater control and clearer understanding of risks.

Shares

Nvidia's CEO is selling. Here's why Aussie investors should care

The magnitude of founder Jensen Huang’s selldown may seem small, but the signal is hard to ignore. When the person with the clearest insight into the company’s future starts cashing out, it’s worth asking why.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.