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China’s Consumers Are Spending More Against Projections

| May 06, 2015 10:52 PM EDT

Chinese consumers are spending more and more on non-essential purchases.

China is the largest consumer economy in the world, and will continue to increase in wealth and spending despite fears to the contrary.

There are concerns voiced out over China's low household consumption of gross domestic product (GDP). The household consumption as a percentage of GDP was down to 34.1 percent from the period of 2009-2014, which was lower than the 35.9 percent from the period of 2000-2004, according to the World Bank.

Although it looks like consumption has decreased, experts say that looking at it from a percentage point of view is deceiving.

"Regardless of its relative percentage of GDP, China's consumption has been growing faster than just about any other country's in absolute terms," said Jeffery Towson, director of Towson Capital, and Jonathan Woetzel, director of McKinsey's Shanghai office. These experts have been looking at the patterns emerging in China's economy, and the prospects are bright.

China's consumption has grown from $650 million in 2000 to almost $1.4 trillion in 2010.

One of the key indicators for China's consumption is the dramatic increase in discretionary spending, which is the spending on non-essential purchases as opposed to necessities for day-to-day living.

"Chinese citizens are now moving beyond being able to only afford the basics of life, and their discretionary spending is taking off," they added, nothing that Chinese have a strong appetite for everything from entertainment, to skiing, and to cafe lattes.

This rise in discretionary spending has been growing 7 percent a year from 2010 to the present, and is expected to do so going into 2020. This is in contrast to spending on necessities, which is only growing 5 percent per year.

The total household income of China is now sitting at around $5 trillion a year, which is far above that of other emerging economies like India, Russia and Brazil.

Despite GDP slowing down, the strong growth in household income and consumption are strong indicators that the percentage of consumption of GDP in China will increase again in the coming years.

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