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Chinese households are where new wealth will be created

Editor: Tong Xinxin 丨CCTV.com

10-14-2015 11:23 BJT

By Tom McGregor, CNTV Commentator

Many global economic experts are raising alarm bells over China’s lower annual Gross Domestic Product (GDP) growth rates; from averaging 10 percent or higher a few years ago to about 7 percent nowadays.

It’s not entirely bad news, since the nation has increased its living standards; raised labor wages and developed a more sophisticated marketplace. The Chinese must adapt to a new era where consumption would drive the economy.

"The transfer of wealth is headed to the household sector,” MNI Indicators chief economist Philip Uglow told CNTV in an exclusive interview. “Chinese households would be where the new wealth will be created.”

He contends that China’s middle class is growing larger and even with a “small marginal increase of personal incomes” that can boost consumer spending in a dramatic manner.

Soaring household wealth

Total household investable assets - savings and cash - in China is expected to amount to over 110 trillion RMB, accounting for a 21 percent annual compound rate since 2013.

Additionally, the number of high-net worth households, with assets worth 6 million RMB or more, has risen at an annual rate of 30 percent in the past three years, according to Frontier Post news.

Uglow believes that China’s economic transition is occurring at the right moment. “There’s a re-balancing of the economy,” he said. "China’s industrial sector is struggling with an over-capacity problem while construction development has fallen sharply. But, there’s a shift to consumption.”

Multinationals are moving their factories to more affordable global regions in South and Southeastern Asia with Africa likely to be the final destination for them. “China is getting priced out of the industrial sector,” Uglow said.

Weakening consumer sentiment

Consumption does not guarantee success for the national economy. The retail sector is highly cyclical; surging higher in good times and plunging lower in bad times. The Chinese are remarkably skilled at saving, spending when they feel confident in their financial security.

The Dhaka Tribune reports that domestic consumption had accounted for 60 percent of China’s economic growth in the first half of this year, up from 51.2 in 2014. Nevertheless, ANZ Bank and polling firm Roy Morgan, has disclosed statistics indicating that China’s Consumer Confidence Index has dropped significantly in recent months.

For the first time in two decades, auto sales in China could drop for the year. Consumer research firm Gartner disclosed that smartphone sales in China have fallen in the second quarter of this year. Meanwhile, Japan’s exports to China, its largest trading partner, fell 4.6 percent in August.

RMB rising in global influence

China’s retail markets may be losing steam, but another trend is emerging. The RMB has just surpassed the Japanese yen as one of the most exchanged currencies in the world. However, the RMB had declined a few percentage points in value last August.

But it’s important to note that Beijing did not manipulate its currency. Chinese officials are trying to help the RMB gain entry as part of a unique basket of currencies, known as Special Drawing Rights (SDRs). Beijing has issued a formal request to the International Monetary Fund (IMF).

The IMF has called for the People’s Bank of China (PBOC) to widen the spread of the RMB’s intra-day exchange rate fluctuations, which had sparked a sudden decline of valuations.

Additionally, Beijing intends to create easier accessibility to credit and support interest rates liberalization. “Such reforms can shift China’s economic growth to consumption.”

Economic transition is necessary

Beijing’s new focus on household wealth would not be painless. Yet it’s inevitable since an over-capacity of steel and other industrial products would hamper a rebound of the manufacturing sector. The Chinese are adapting to changes of global economic conditions, and they’re ready for it.



( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )



Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.



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