For years, the Trends editors have
forecast that the developing world, led by China, would have to develop a
consumer economy that would progressively take the place of North America and
Europe as the engine of prosperity. Now, the deleveraging of the American
consumer has finally triggered this transformation.
China ensured its recent years of
explosive growth with a paradigm that relied heavily on investments by its
government and multinational corporations. These investments were aimed at the
production of goods for export to large and affluent Western consumer markets.
The program worked, lifting hundreds of millions of people out of poverty and raising
the standard of living in China, even while swelling government coffers to
unprecedented levels.
But China’s dependence upon a foreign
consumer base represented a vulnerability, as well as a strength. When the
global recession hit, Westerners stopped buying, Chinese exports shrank,
factories began closing, and tens of millions of people were pushed out of
jobs. In response, China unleashed a $600 billion stimulus package that
triggered lavish lending from its banks. The aim was to rapidly return its
economy to growth. But, as explained in China’s
New Place in the World Economy1 in the September 2009 issue of Trends, this was only a stop-gap measure; it can’t be sustained for the long term.
China’s leadership realized that its
long-term prosperity and stability depends on transforming China’s people into
Western-style consumers. This will require an enormous feat of social
transformation. At present, China’s domestic consumption accounts for about 36
percent of its gross domestic product. Before the Great Recession, the
comparable figure for the United States was 70 percent of U.S. GDP.
Without a change in behavior, Chinese
consumer spending will grow very slowly, at a rate of about 3 percentage points
annually. According to experts at McKinsey and Company, it will eventually
level off at about 39 percent of GDP.2
This means that China would remain dependent on foreign consumers and its
ability to export goods to them, while the Chinese government...
