Europe and the US might be bracing for another economic hit, but economic analyst Arthur Kroeber explains in The Financial Times why he expects China to continue growing – in stead of crashing like others predict.
Private consumption in China is low, 33 percent of its GDP today, while its neighbors spend at least 50 percent on consumption. How is this working out in China, where sales of luxury goods and cars have been picking up over the past few years?
The Financial Times:
How to reconcile this paradox? Arthur Kroeber, managing director of Gavekal Dragonomics, an economic consultancy, has an explanation. He argues that China’s private consumption has actually accelerated from around 7 per cent in the late 1990s to around 10 per cent a decade later (although growth did slow noticeably in 2010). Kroeber declares that China’s real per capita consumption growth in recent years is “the fastest of any country in history”.
Among the many clouds looming over the world’s economy, it is reassuring to have a ray of sunshine to look ahead to. Kroeber goes further, arguing that China’s very high investment rate of 46 per cent, also the highest in recorded history, may also be a precursor to economic super-stardom rather than the precursor to a crash as several sceptical observers believe it is. The US and Germany ( with investment ratios of more than 20 per cent of GDP when they were industrialising rapidly ) and subsequently Japan and South Korea (more than 30 per cent) also invested more as a percentage of their GDPs than ever seen before, he argues. They then went on to be economic behemoths.
So, like sporting records perhaps, investment as a percentage of GDP is one that is beaten every decade or two. Kroeber predicts that China is at the point when its investment ratio stabilises and then declines “while consumption begins to pick up steam.” He predicts that China will likely grow at a very respectable 8 per cent a year annually for a decade at least.
Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.
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