Trends in Private Consumption in China: The Emergence of the Chinese High-Income Class and Its Global Relevance

Abstract

China’s new consumers may well become a new long-term source of global aggregate demand if the country succeeds in boosting domestic consumption as a share of GDP, an objective of its 12th Five-Year Plan (2011-2015). This paper investigates recent trends in aggregate private consumption in China. We quantify the importance of Chinas high-income class in the medium term using a simple method that provides a ball-park estimate of the size of this new class of consumers. Its rapid growth will have a global impact, since it will help to boost Chinese imports of some consumer goods, including affordable luxury goods. We also explore income disparities among Chinese provinces and between urban and rural areas and look more closely at characteristics of Chinese consumers that are most helpful in predicting their future spending decisions, especially in the medium term: age structure, gender, and use of digital technologies. Our main findings are: the high-income class will approximately double in size in the next decade, especially in the coastal provinces and urban areas that already present higher average incomes and offer better growth opportunities. Consumption patterns will be driven by young people increasingly accustomed to using the internet and computers. Women, who are increasingly accessing upper-tier positions in the Chinese job market, will exercise growing purchasing power.

Paper presented at the Workshop “The Chinese Economy”, Venice, Italy, 25–27 November 2010. The authors are grateful to Pasquale Capretta, Claudio Colacurcio, Luca Paolazzi and Fabrizio Traù for helpful suggestions and especially thankful to Francesca Mazzolari for valuable comments and advice.