The deceleration of China's economic growth (+6,7% y/y in each quarter of 2016) after more than 35 years of development at an average annual rate of just under 10% is both cause and effect of the global slowdown. However, the result is in line with the target set by the country's government which has planned an increase in economic activity of between 6,5% and 7% for this year.
Achieving GDP growth around the desired values also requires a rebalancing of the various components which should see the share of household consumption gradually increase. Rising incomes and the extension of welfare programs to ever wider segments of the population suggest that household spending may intensify.
The progressive increase in the number of families belonging to the middle class also contributes to the favorable trend in consumption: compared to the 5 million in 2000, it is currently estimated at 225 million; to these could be added another 50 million by 2020. Changes in social status also change the basket of expenditure: the share of consumption for food and clothing is decreasing, while that for communications, education and leisure is increasing .
Despite the general improvement in living standards, the distribution of wealth in China is rather unbalanced among households. The area (urban or rural) and/or the region of residence weigh on it, but above all the ownership of the house. Incentives for home purchases rapidly and significantly increased the level of household debt, so much so as to induce the central bank to intervene to limit the disbursement of new loans by banks.
A GDP in controlled deceleration
Among the news that have recurred more frequently in recent times when it comes to China there is certainly the weakening of economic growth and the consequent repercussions, given the weight that the country now has in the world economy. China's GDP, expressed in purchasing power parity (ppp), currently represents About 17% of the global product, the largest share in the world before even the United States.
After closing 2015 with a real increase in GDP of 6,9% and a variation of +6,7% in each of the first three quarters of this year, the forecasts of the main supranational institutions indicate a gradual downsizing of the pace of growth, which should in any case be maintained above 6%. In this way, China would come to represent 20% of the planet's GDP by 2020 (expressed in pp).
Despite widespread concern about the slowdown in the economy, the event falls within the guidelines of the 13th five-year plan (2016-2020) established by the Government which establishes, among other things, how the annual increase must not fall below by 6,5% in order to double 2010 per capita GDP by the end of the current decade. Thus, the goal of a "moderately prosperous society" would be realized in conjunction with the 2010th anniversary of the founding of the Communist Party of China. The goal should be easily reached considering that in 31 the per capita GDP was around 4.250 yuan (€2015) and that of 50 was close to 6.850 (€XNUMX).
The achievement of GDP growth around the desired values also passes through a ribilance between the weight of the various components in favor of an increase in the share of household consumption, a purpose often re-proposed in the various five-year plans but which is still struggling to materialize. Currently, Chinese household spending amounts to 37% of GDP, only one percentage point more than in 2010, but the latest planning hopes it will grow "significantly" in the 2016-2020 period.
The consolidation of two trends that have been going on for some years could contribute to the achievement of the result income growth of households greater than the GDP and an expansion of welfare programs with the consequent reduction of the high precautionary saving that has always characterized the behavior of Chinese households. According to indications from the International Monetary Fund, the current savings rate, equal to 37% of disposable income, could drop by 5 percentage points in the next few years.
At the per capita level, in 2015, the average household disposable income increased by 7,4% (to Rmb 21.966, €3 thousand) with an increase of 6,6% for the urban population (to Rmb 31.195, €4.276). and 7,5% for the rural one (at 11.422 Rmb, €1.566). The different rate of growth between the incomes of the two communities has allowed for a reduction in the gap which, however, remains wide and favors the continuation of the internal migration process.
In 2015, the resident population in the urban centers exceeded 56%, 1,3 pp more than a year earlier with the goal (included in the 13th five-year plan) of reaching 60% by 2020. As regards the extension of social security benefits, the numbers are impressive, as always when it comes to China, a country with a population of over 1,3 billion people: in 2015, there were 505 million individuals participating in pension programs (+3,7 million compared to the previous year), the benefits basic health care provided to 666 million people (+68,2 million), unemployment benefits paid 2,3 million, 214 million were insured against accidents at work (+7,65 million), maternity protection for 178 million women and guaranteed minimum income for over 66 million Chinese.
Overall, therefore, the generational transition from the frugal consumers of the past to an increasingly widespread well-being could be a driving force to increase the share of consumption by Chinese households. An improvement in the standard of living can also be seen in other circumstances, starting with the trend in retail sales which, although less than in the recent past, grew by 10,7% in the first ten months of this year.
No less important are the changes detectable in the type of goods purchased. Many items of expenditure increased by double digits in 2015: food (+14,6%), household appliances (+11,4%), health services (+14,2%), office equipment (15,2% ), furnishings (16,1%), telecommunications equipment (+29,3%), building materials and decorations (18,7%). The dynamics of the other items, although more limited, was nonetheless lively: from 5,3% of cars, to 8,8% of cosmetics and around 10% of clothing.
In about twenty years (1995-2012) the quotas intended for the various categories of consumption have significantly changed, with a gradual reduction in the expenditure reserved for primary goods: both for urban and rural families the weight of food and clothing has significantly decreased against an increase in expenditure on health services and on education, culture and leisure. For households residing in cities, there is also an increase in the incidence of expenses for transport and communications.
A company in transformation
Over the past three decades, China's GDP has increased at an average annual rate of about 10%, leading to significant social transformations, partly the result of specific interventions, partly consequent to such a dynamic and prolonged economic evolution. The planning of the urbanization process, the reduction of poverty, the extension of pension schemes and social protection, the gradual reduction of state intervention together with new possibilities and availability have offered the opportunity for the birth and growth of a middle class which various economic operators look with interest.
Some analyzes estimate that i 5 million relatively wealthy families existing in 2000, i.e. with incomes between 75 and 280 yuan (€10-€38), are now 225 million; to these should be added another 50 million by 2020. Distinctive features of new Chinese middle class reside in urban centres, a high level of education, home ownership and young age.
Overall, a combination of elements of well-being often unknown to previous generations if we consider that until the 70s private property was prohibited, only a minority had personal resources and inequality was almost non-existent (the Gini index was equal to 0,3% in 1980).
Looking for many new customers luxury brand invested heavily in China before the economic slowdown and the depreciation of the Asian currency put pressure on spending on this type of goods (in 2015, for the first time in ten years, purchases of luxury goods decreased with similarly unfavorable prospects for the next few years).
Despite the general improvement in living conditions, disparities remain high: theinequality index has reached 0,49% and it is estimated that 1% of households hold over 1/3 of total wealth while the poorest 25% hold less than 2%.1 In addition to the area and region of residence (urban or agricultural center /coastal or inland areas), which respectively account for 10% and 23% of the variation in assets of Chinese households, home ownership plays a decisive role in the uneven distribution of wealth considering that it represents over 70% of assets overall.
The different level of owning households (higher in urban areas) and the different trends in house prices in such a vast country help to amplify the divergences. The indications of the central authorities also weigh on the performance of the real estate market which, through measures to loosen or restrict credit and taxes, favor or not a growth in prices. This is why house prices offer conflicting indications: after a 2015 of falling quotations, in the last year in the main medium-large centers there is mainly a tendency to increase in quotations (in October in 65 cities out of the 70 subject to the survey ) for both new builds and used homes.
Overall, the encouragement to buy one's own home has led to an increase in household debt which, both due to the speed of the increase and the level reached, has led the central bank to put pressure on the credit institutions to make the disbursement of new mortgages. In the first quarter of the year, total loans to the household sector reached 28 trillion yuan (+17%) with mortgages at 16,8 trillion yuan, more than 30% compared to a year earlier. In 2015 household liabilities amounted to 38% of GDP, a share that the International Monetary Fund forecasts could reach 58% by the beginning of the next decade.
