|
AN
import plunge dashed hopes that China would
dig itself out of its export growth slump
with pent-up consumer demand combined with
a goodly dollop of stimulus spending from
Beijing.
The way out of these disappointing results
is to increase the rate of participation
in the workforce from women, and increasingly
from those aged over 65, say consultants
McKinsey & Co in their latest paper.
In an aging society, they say, retirement
at the age of 60 or 65 is going to be a
thing of the past.
Looking at the same question, the Euromonitor
International consultancy compares and contrasts
the consumer economies of China and the
US, noting that private consumption in 2014
accounted for 68.3 per cent of GDP in the
US while only 37.2 per cent in China.
McKinsey says the public sector can assist
by increasing its own activity, to deliver
again public services, and to do more for
its newly empowered urban citizens in everything
from education to healthcare.
It can, it said, become a facilitator
rather than a blockage, providing business
licences to helping people resolve disputes.
The good news, McKinsey said, is that
young people, below the age of 25 are ready
to buy and that segment is rich relative
to their parents.
And consultants McKinsey & Co thinks
that this age group, the ones they call
G2 consumers, will account for 30 to 40
per cent of consumer spending within a decade.
But getting goods and services to meet
demand remains an enormous problem in China,
said McKinsey's Shanghai chief Jonathan
Woetzel. Logistics costs, he said, as a
share of GDP - the amount of cost that it
takes to ship something from A to B, including
cargo, financing, and administration - in
China that's about 12 or 13 per cent today.
While it's down from 14 or 15 per cent
it was in the past, it is a long way from
the American cost of consumables delivery
of five per cent.
Strides have been made in high-speed
rail investment, the single biggest investment
China had made not to metros or mass transit
rail extension, given that China is going
to be building more than 40 city metros
in the next 10 years.
The problem is that these investments
will only pay off in 30, 40 or 50 years
through greater productivity - great pluses
for the medium and long term while doing
little to address issues in the here and
now.
So there's a long way to go before China
reduces its logistics costs to the level
of the continental United States. For the
past 50 years, China and most countries
in Asia have grown faster than their North
American and Western European counterparts.
China is only the most noteworthy, growing
more than seven per cent a year. Korea,
Indonesia and India are all growing more
than five per cent a year. Even Japan, at
3.3 per cent over the past 50 years, has
been growing faster than the US and Western
Europe.
As we go forward, many of the demographics,
the change that was motivating some of that
growth, that's going to slow down. We see
Asia, similar to the rest of the world,
as having just simply much less of that
fertility-driven, longer-life-span-impacted
population growth.
That means growth will slow across the
board in China, India, and Indonesia. China
has, for example, been growing at 7.5 per
cent over the past 50 years, but we can
expect something like five per cent in future,
which is not bad given the enormous base
numbers involved.
Euromonitor International consultancy
notes that Chinese growth has been driven
by investment, whereas in the US private
consumption has been the driver said Euromonitor,
noting one similarity, that both countries
have seen debt-fuelled growth.
Even by 2030, China's consumer expenditure
will still account for less than a half
of the Chinese economy at 40.9 per cent
of total GDP, meaning it will still not
be a driver of economic growth or support
a more balanced economy as the Chinese government
had hoped.
Agriculture remains an important sector
in China, contributing 10 per cent to GDP
in 2013 whereas in the US it is one per
cent. But productivity is much higher in
the US with only 1.4 per cent of workers
in agriculture against 32.6 per cent in
China.
US farms tend to be large-scale businesses
whereas in China many farms are traditional
and small-scale. The Chinese government
aims to modernise farming, seeing a better-functioning
agricultural sector as a tool to combat
rising rural-urban inequality and to quell
social unrest.
Manufacturing differences between the
two economies are also striking, said Euromonitor.
In China, manufacturing accounts for a far
larger proportion of the economy at 30 per
cent while only 13.2 per cent in the US.
But with the advent of nearshoring, manufacturing
has been expanding in importance in the
US while in China it is declining, having
peaked at 32.9 per cent in 2007. The US
manufacturing sector is benefiting from
the nearshoring trend driven by low energy
costs and the subdued growth in labour costs,
while Chinese factories still suffer from
rising costs and skill shortages.
As Euromonitor sees it, younger Chinese
consumers spend, but not nearly enough to
drive the economy. Like the US, China has
a booming luxury goods market which became
the world's third largest in 2013 behind
the US and Japan.
This partly reflects the high level of
income inequality in China, and is partly
the result of the higher incomes enjoyed
by younger Chinese consumers, who are more
willing to spend on luxury goods as a mark
of success.
(Curiously, income inequality levels
are virtually the same in China at 47.3
per cent against 47.7 per cent in the US
- though this is high by international standards.)
In 2013, people in their 30s had the
highest average gross income in China whereas
the age cohort enjoying the highest average
gross income in the US was in their 50s.
Overall, however, Chinese consumers are
not spending enough, as seen in the country's
high savings ratio and the fact that China's
economic growth is mainly investment driven.
In 2013, consumer expenditure as a proportion
of total GDP was 36.5 per cent in China,
compared to 67.1 per cent in the US.
It appears that the "new normal"
is looking more like the old normal, not
recent years of galloping double-digit GDP
numbers for China, but rather of earlier
times when economic numbers undulated and
we did not make much of a fuss when they
did. There is still moderate growth, albeit
supported by stimulus spending, spread across
an enormous population that is spending
more slowly that we would like - comme toujours!
|
