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For all the hubbub about the US-China trade war, trade is a fraction of China’s economy
By Jonathan Woetzel & Jeongmin Seong
May 6, 2019
Trade tensions between China and the United States have rumbled along for months. There have been false dawns, and a great deal of rhetoric.
Some of the world’s institutions have warned of the consequences. The head of the World Trade Organization warned of the worst crisis in global trade since 1947, and the International Monetary Fund said that a full-blown trade war between the world’s two largest economies could make the world a “poorer and more dangerous place.”
So it’s somewhat ironic that trade is in fact no longer the main driver of the Chinese economy.
As recently as 2008, China’s net trade surplus accounted for 8% of GDP; by 2018, that figure was only about 1.3%—less than either Germany or South Korea, where net trade surpluses generate between 5% and 8% of GDP. The US isn’t far behind its Eastern neighbor: In 2018, US had a trade deficit of about 3% of GDP, down from 5% in 2006.
Instead, China’s economy today is driven by domestic consumption. In 11 of the 16 quarters since 2015, consumption has contributed more than 60% of GDP growth. In addition to becoming the world’s biggest market for online retail, the country now represents more than 30% of global market in luxury goods, automotive, consumer appliances, mobile phones, and spirits.
China’s working-age individuals today also have higher disposable incomes than their parents. They are so numerous and their incomes rising so rapidly that they have the potential to reshape global consumption as the baby boomer generation did in the West—the richest generation in history.
Chinese urban consumers are devoting a greater share of their income to discretionary spending, such as transportation and communication, education, and health care. Spending on food declined from 50% of total household consumption in 2000 to 25% in 2017. This is already similar to urban consumers in developed countries today—Japan at 26%, South Korea at 29%, and the United States at 17%.
https://qz.com/1601598/china-cares-more-about-domestic-consumption-than-us-china-trade-war/
By Jonathan Woetzel & Jeongmin Seong
May 6, 2019
Trade tensions between China and the United States have rumbled along for months. There have been false dawns, and a great deal of rhetoric.
Some of the world’s institutions have warned of the consequences. The head of the World Trade Organization warned of the worst crisis in global trade since 1947, and the International Monetary Fund said that a full-blown trade war between the world’s two largest economies could make the world a “poorer and more dangerous place.”
So it’s somewhat ironic that trade is in fact no longer the main driver of the Chinese economy.
As recently as 2008, China’s net trade surplus accounted for 8% of GDP; by 2018, that figure was only about 1.3%—less than either Germany or South Korea, where net trade surpluses generate between 5% and 8% of GDP. The US isn’t far behind its Eastern neighbor: In 2018, US had a trade deficit of about 3% of GDP, down from 5% in 2006.
Instead, China’s economy today is driven by domestic consumption. In 11 of the 16 quarters since 2015, consumption has contributed more than 60% of GDP growth. In addition to becoming the world’s biggest market for online retail, the country now represents more than 30% of global market in luxury goods, automotive, consumer appliances, mobile phones, and spirits.
China’s working-age individuals today also have higher disposable incomes than their parents. They are so numerous and their incomes rising so rapidly that they have the potential to reshape global consumption as the baby boomer generation did in the West—the richest generation in history.
Chinese urban consumers are devoting a greater share of their income to discretionary spending, such as transportation and communication, education, and health care. Spending on food declined from 50% of total household consumption in 2000 to 25% in 2017. This is already similar to urban consumers in developed countries today—Japan at 26%, South Korea at 29%, and the United States at 17%.
https://qz.com/1601598/china-cares-more-about-domestic-consumption-than-us-china-trade-war/
