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China could generate additional $15 trillion in consumer spending

Staff writer |
According to "Sold in China: Transitioning to a consumer-led economy," a new report by The Demand Institute, a think tank by The Conference Board and Nielsen, China could generate an incremental $15 trillion in consumer spending over the next decade.

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This could be donw through a combination of business strategies that include increased communication to the Chinese public about products and services, better access to those products and services, and innovations that expand the range of financial services that typically enable higher levels of domestic consumption.

History will demonstrate, and most economists would agree, that a successful transition to a consumption-led economy is essential for continued robust economic growth in China.

The report concludes that for the transition to be maximally successful and enduring, not only must the government provide the requisite policies and incentives, but the business community must make parallel investments to facilitate consumption.

Consumer credit services—such as credit cards, mortgages, and auto loans—and life, health and property insurance are just a few product and service categories poised for growth should the right innovations, communications, access and payments infrastructure be employed.

China's economic success story has been largely driven by investment- and export-led growth ("Made in China"), including massive infrastructure investments. As a result, while Chinese consumer spending has grown in absolute terms, consumption as a share of GDP has steadily declined for six decades.

That share now stands at about 28 percent (down from 76 percent in 1952) and is one of the lowest ratios globally. The Demand Institute projects that share is unlikely to rise significantly over the next decade unless there are substantial interventions from government and business leaders.

The Demand Institute evaluated several future scenarios, of which the most optimistic would lead to a total of 420 trillion yuan in consumer spending over the next decade, a full 90 trillion yuan (about $15 trillion) more than if consumption's share of GDP were to remain flat.

The report benchmarks China's economic history and potential future path against the experience of 167 countries between 1950 and 2011. The report also describes 12 key indicators that business executives should monitor going forward to understand how the transition is evolving over time.