China is now moving toward a new growth model that relies more on domestic consumption. The potential of China's consumer power will be unleashed as the nation improves its social services. That's one big driver for the domestic consumption in the world's most populous nation. But are there any other ones?
Jing Ulrich, managing director and chairman of global markets, China at J.P. Morgan, believes that urbanization offers part of the answer.
"If you look at China's urbanization rate, right now is about 52 percent. That means over 50 percent of the population already resides in the cities, which means that another 50 percent of the population will be moving to the cities in the coming 10 years, 20 years. And this would become a very important driver for consumption as well," Ulrich told me.
"Because as people move from the countryside to the cities, their incomes would grow quite rapidly. In fact, if you look at the income levels of people living in the cities versus the countryside, there are about four to 10 times higher. So I also believe urbanization would become a very important driver for China's domestic consumption, in the next decade and perhaps in the next two decades."
Ulrich's views on urbanization were echoed by Steven Roach, former chairman of Morgan Stanley Asia.
"The urbanization trend in China has been unprecedented, but there's still a good deal more to go," Roach told me. "I think the government is very committed to that, and that's also important to consumption, because urban workers earn about three times more than those living in rural communities."
China's successful transition to a consumption-led economy is certainly good news for the world, especially in a time of global recession when other major economies, such as the United States and euro zone are seeking new sources of growth. The emergence of the Chinese consumers is just what they are craving for.
(This is a reprint from the People's Daily Online of the August 26, 2013 edition.)