China Dream is still within reach
Andrew Leung says grim forecasts of a China hobbled by its immense challenges are not supported by the facts of a growing middle class and a determined push for crucial change
With China's economy losing steam, many questions are being asked about whether this masks serious structural problems that may herald the end of the so-called "China Dream". A recent cover of The Economist showed a front-running China caught in the mud.
The first question that comes to mind is whether China could manage slowing to below 7 per cent growth without disaster. Professor Michael Pettis, of Peking University, thinks growth may have to slow to as low as 3 per cent before rebalancing towards private consumption. However, James O'Neill, former chairman of Goldman Sachs Asset Management, believes China's ambition of 7.5 per cent growth remains achievable.
The answer may become a little clearer by examining the following data.
According to the National Bureau of Statistics, consumption contributed 55.5 per cent to China's growth in 2011, ahead of investment at 48.8 per cent and net exports at 4.3 per cent. The trend continued in the first three quarters of 2012.
Further, a report in the Mckinsey Quarterly shows that the number of middle-class consumers, those with US$9,000-US$34,000 of household income, has grown from 4 per cent of the urban population in 2000 to 68 per cent last year. And, already, China is now the world's largest e-commerce market, according to the McKinsey Global Institute.
In fact, over the past 20 years, China has enjoyed by far the highest average growth rate in household consumption of any major economy, though capital investment has grown even faster.
The reality is that with large wage hikes and better access to health care and other social provisions, there is a surging middle class with rapidly rising discretionary income. This is happening in the largest urbanisation drive in human history, with third- and fourth-tier cities in inner provinces taking the lead. More economic opportunities inland would help in reforming the household registration system. This is critically needed to end the social and economic marginalisation of some 240 million rural migrants, by luring them back to their home turfs.