By 2017, China is set to surpass the USA as the world's largest economy in terms of total GDP measured in purchasing power parity.
However, despite the government's efforts to shift the focus of the Chinese economy away from export-led growth towards domestic consumption, China's per capita disposable income and spending will remain significantly lower than the USA.
Despite the 2008-09 global economic downturn, China's per capita annual disposable income grew by 9.9% year-on-year in real terms to RMB14,410 (US$2,110) in 2009.
In the USA, during the same year, per capita annual real disposable income was down 2.3% year-on-year to US$32,618;
In line with income growth, China's per capita consumer expenditure rose by 9.7% in real terms to RMB9,121 (US$1,335) in 2009. In the USA, per capita consumer expenditure was down 1.5% in real terms from the previous year, although the US per capita consumer spending was still about 24 times that of China at US$31,761 in 2009.
Source: Euromonitor International from national statistics/OECD/EurostatNote: Data for 2010 are forecasts
In terms of total market size, China's total consumer expenditure in 2009 stood at US$1.8 trillion, significantly smaller than US$9.7 trillion in the USA.
However, China has the world's largest population – at over 1.3 billion in 2009 compared to the USA's 307 million. This, combined with strong disposable income growth, presents huge market potential for consumer businesses.
In 2010, the Chinese economy continues to register robust growth rates, which positively impact incomes and expenditure:
China's real GDP went up by 9.6% year-on-year in Q3 2010, following strong year-on-year growth of 10.3% in Q2 2010 and 11.9% in Q1 2010.
Along with the government's RMB4.0 trillion stimulus package (launched in November 2008), investment and domestic consumption drove growth;
During January-September 2010, disposable income per capita for China's urban population saw a year-on-year real growth of 7.5%, while that for the rural population was up by 9.7% year-on-year in real terms.
During the same period, consumer expenditure per capita for the urban population rose 6.3% year-on-year in real terms and that for the rural population grew 7.3% year-on-year in real terms;
However, China is still an emerging economy that faces several challenges:
In 2009, China's savings ratio was high at 36.7% of disposable income, compared to 2.8% in the USA. Besides having the traditional propensity to save, Chinese consumers save to secure future healthcare costs and pensions.
As a result, consumer expenditure accounted for only 34.6% of China's GDP in 2009, compared to 69.6% in the USA;
Source: Euromonitor International from national statistics/trade sourcesNote: Data for 2010 are forecasts.
Increasing urbanisation leads to rising income inequality between urban and rural areas. In the first three quarters of 2010, disposable income per capita of China's urban population was RMB14,334 (US$2,099), compared to RMB4,869 (US$713) for the rural population.
Income inequality negatively impacts the Chinese consumer market in that it restricts the purchasing power to better-off urban consumers.
The Chinese economy is expected to grow robustly with annual real GDP growth rate forecast at 10.5% in 2010. In comparison, the USA is expected to see a meagre 2.6% annual growth in real GDP during the same year;
In 2010, China's annual disposable income per capita is expected to go up by 8.1% year-on-year in real terms, while consumer expenditure per capita will increase by 9.3% year-on-year in real terms.
During the same year, the USA's annual disposable income per capita is forecast to rise by only 0.6% year-on-year in real terms, with consumer expenditure per capita recovering by a meagre 1.6% year-on-year in real terms;
In its 12th Five Year Plan (2011-2015), the Chinese government aims to shift the focus of the Chinese economy away from export-led growth towards domestic consumption and services. The government also aims to increase social spending (such as on healthcare) in order to discourage high savings and boost private consumption;
It is expected that by 2017, China will surpass the USA as the world's largest economy in terms of total GDP measured at purchasing power parity. However, China's per capita disposable income and spending will still be significantly lower than the USA.
In 2017, China's per capita disposable income is forecast at RMB34,517 (US$5,003), compared to US$42,140 in the USA.
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7 December 2010