Unleashing China's Middle Class

July 05, 2016 |Author: EGA Investment Strategy | Categories: Chart of the Week, Emerging Markets

“China is ripe for a productivity revolution,” McKinsey states in its recent paper, China's Choice: Capturing the $5 Trillion Productivity Opportunity1. Labor productivity is 15 to 30 percent of the average in the Organization for Economic and Co-operation and Development (OECD) countries. One of the five major opportunities they identify is “unleashing more than $6 trillion in consumption by serving middle-class consumers better.” They conclude that these opportunities can help raise productivity by 1 to 8 percent per year through 2030.

More Chinese consumers would have higher levels of disposable income. Consumption accounts for 69% of U.S. gross domestic product (GDP), 61% for developed markets (DM) and 50% for emerging markets (EM).  McKinsey notes that “consumption (in China) has grown rapidly along with GDP, rising by $1.1 trillion from 2010 to 2015. However, its share has remained at around 36 percent of GDP since 2008 (in real terms). We believe that this share can grow to 49 percent by 2030, rising from $4.1 trillion per year to $10.8 trillion. More Chinese consumers would have higher levels of disposable income, and consumer-facing companies would need to address rising demand for higher-quality goods and services. Achieving this growth is an enormous productivity-boosting opportunity.”
 
1McKinsey Global Institute – “China’s Choice: Capturing the $5 Trillion Productivity Opportunity” – June 2016
 

Definitions

The Organization for Economic Cooperation and Development (OECD) is a group of 30 member countries that discuss and develop economic and social policy. OECD countries are democratic countries that support free market economies.

 
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