China’s strong Q2 figures, with real GDP growth coming in at 7.0% year-on-year - above most analysts’ estimates - should not be taken at face value. Quite apart from the usual debates over the accuracy of the figures, much of the growth stemmed from short-term stimulus measures - including cuts in interest rates – and one-off factors - such as a booming trade surplus. Because of this the figures don’t represent a reversal of recent trends; we continue to expect the economy to slow in the medium to long term.
Yet in the same way that this stronger-than-expected growth in Q2 can be misleading, our forecast slowdown should not be taken at face value. The headline figure masks some interesting trends, particularly for those who are interested in targeting Chinese consumers.
Related: Emerging Asia’s Growth Champions
Real GDP Growth: 2009-2020
China Is Absolutely Growing
In absolute terms, our forecast growth of 6.1% annually between 2015 and 2020 translates to an additional US$3,728 billion of GDP (in 2014 prices) – equivalent to the size of the economy of Eastern Europe. It also compares favourably with the stronger percentage growth seen in the early 2000s.
Increase in Real GDP: 2009-2020
Although also decelerating, the growth of private consumption will continue to outpace economic growth. The rebalancing of the economy away from investment to consumption will therefore continue.
Real Growth of GDP and Private Final Consumption Expenditure: 2009-2020
Despite the slowing economic growth, incomes will continue to increase. For example, there will be strong growth in the number of households with a disposable income over US$25,000 (in 2014 prices). In percentage terms this growth will show a stark deceleration over recent years, but again in absolute terms trends are more impressive. Between 2015 and 2020, in total China will gain 45.8 million households with an income over US$25,000. This is equivalent in size to more than all the households in Germany.
Increase in the Number of Households with a Disposable Income over US$25,000: 2009-2020
This isn’t to say that China does not face some major challenges. It does, and chief amongst them are its demographic concerns. These are two-fold. First the population is ageing and the number of working age peaked in 2013. Secondly the rate of urbanisation is decelerating – and that’s in both percentage and absolute terms. This matters because China’s growth has been in part driven by a constant stream of workers to the cities. This engine is now spluttering.
Increase in Urban Population: 2009-2020
Risks On The Horizon
So the outlook is for slower growth, with elevated risks; but it’s important to look beneath the headline figure and also to look beyond percentages. China is slowing, but its sheer size means that even growing at 6.0%, its 1.4 billion consumers, in its 452 million households, will remain a key draw for consumer goods companies. The China story continues, but with a different narrative. Companies must adjust their strategies accordingly.
Economic and Consumer Insight with Sarah Boumphrey, Euromonitor International
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