Tuesday, May 26, 2020

Why China’s cities will drive global growth

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Urban Chinese population growth, as well as increases in urban incomes, and urban consumer spending is expected to drive growth, write Chang Ka Mun, and Jaana Remes, in Project Syndicate

For 15 years, China has been a key engine of global growth. But now that China’s investment-led boom has run its course, continued economic growth – in China and globally – will depend on urban Chinese consumers.By 2030, people living in cities will drive 91% of global growth in consumption, and China is emphasizing both urbanization and a consumer-led growth model.The McKinsey Global Institute’s latest research is optimistic that China’s strategy will succeed. MGI (where one of us is a partner) foresees continued growth in the number and income of urban consumers, and predicts that 700 Chinese cities will generate $7 trillion, or 30%, of global urban consumption growth between now and 2030.

Today, China’s urban working-age consumers number 521 million; in just 15 years, their ranks will have swollen to 628 million. Beijing, Guangzhou, Shanghai, and Shenzhen will each add more than one million households with annual income above $70,000 – the number of Hong Kong households in that income bracket today. Per capita spending is set to jump from $4,800 to $10,700 by 2030, at which point this group will spend 12 cents of every $1 of urban consumption worldwide.

Urban incomes in China are now reaching a threshold where spending on both goods and services accelerates rapidly. Annual household spending on personal products and on dining out will more than double, to $770 and $720, respectively. Chinese consumers are also traveling more, with the China Outbound Tourism Research Institute predicting that more than 100 million Chinese will travel abroad by 2020.

China’s new consumer army will have the means and, more important, the willingness to spend its higher earnings. According to McKinsey’s 2016 Global…

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