People buy Apple products at Apple’s new flagship store on its opening day following an outbreak of coronavirus disease (COVID-19) in Sanlitun, Beijing, China on July 17, 2020.
Thomas Peter | Reuters
BEIJING – Chinese consumer spending will double in ten years, with an emphasis on services rather than goods, Morgan Stanley analysts predicted in a 200-page report released Wednesday.
By 2030, China’s private consumption will reach $ 12.7 trillion, about the same amount that U.S. consumers are currently spending, according to the report. That figure also exceeds Morgan Stanley’s three-year forecast of $ 9.7 trillion and Chinese consumers of $ 5.6 trillion spent in 2019.
The estimate of this expected growth is: increased government emphasis on policies to support the Chinese domestic economy, increased household incomes, higher growth in urban areas, technological changes and demographic changes, according to the report .
Analysts predict that disposable income per capita is likely to double, from $ 6,000 a year to $ 12,000 by 2030 as more people grow and leave the workforce.
Aging population to boost spending
Significantly, Morgan Stanley analysts expect that future Chinese spending will fall into new growth categories over the next 10 years, as the age groups with the most purchasing power have families or retire.
“Material changes in consumption patterns are likely to occur, from the focused young consumer to household demand, which will require a higher proportion of services in consumption,” the report states.
The 35-45 age group is likely to increase by 25.3 million people, roughly the current size of Australia, and people aged 55 and over will increase by 123.9 million, or the current population of Japan, according to the report. Analysts added that the size of other adult categories is likely to decline as a result of China’s ban for years on having more than one child and a global drop in the birth rate.
“We believe that the average Chinese consumer will be an engine of change rather than a mere recipient of Western consumer trends,” the authors added. “Part of this change will be informed by certain cultural values and consumer needs to support those values. These include strong family ties and the prioritization of education.”
Why the Chinese may not spend so much
Morgan Stanley’s forecast of $ 7 trillion in spending over the next few years means that Chinese private consumption is likely to grow by about 7.9 percent annually over the next decade, “one of the highest levels in the world,” according to the ‘report.
But uncertainties remain as the world economy struggles to cope with the coronavirus pandemic.
While China’s overall economy recovered quickly from the initial shock of the pandemic, personal spending took longer to recover. Retail sales fell 3.9% last year despite a 2.3% increase in national GDP. Monthly, sales grew again in August and grew 4.6% in December over last year.
Morgan Stanley analysts listed several other developments that could prevent the Chinese from spending as much as they anticipated.
Authorities could aggressively reduce the availability of credit to consumers, according to the report. The Chinese may also be inclined to save more if increased automation and other technological applications lead to greater-than-expected job losses or if the government is unable to significantly improve social security plans for help cover large personal expenses.
Chinese households save mainly on education, retirement and health, according to the report.