Credit Suisse caused a stir last month when its analysts predicted that China would overtake Japan to become the world's No2 consumer nation by 2015, second only to the United States. Unfortunately, many companies and investors dreaming of riding China's consumer spending boom are likely to end up disappointed.
Credit Suisse based its projections on a survey of relatively wealthy consumers in eight mainland cities. Given current trends, the bank announced, by 2020 Chinese consumption will be worth US$8.8 trillion at 2006 prices, or about the same size as the US market last year.
It was a message both investors and corporations were eager to hear. Stocks seen as plays on Chinese consumption growth have shot up in recent months. For example, shares in Shenzhen-listed Yanjing Brewery - one of Credit Suisse's 'winners' - are up 88 per cent since mid-November last year.
Meanwhile, foreign retailers are racing to set up shop in China. The latest entrant is Swedish fashion chain Hennes & Mauritz, which opens its first mainland store today in Shanghai. As a market, the company's chief executive told Reuters, China compares to Europe.
Alas, not for the foreseeable future. Credit Suisse restricted its survey to exactly the type of consumers targeted by foreign investors; a sample of just 2,700 big-city inhabitants with an average per capita income after tax of 2,129 yuan a month. Given that those questioned typically save 25 per cent of their income, that equates to an average annual spending power of about 19,000 yuan or US$2,480.
Unfortunately US$2,480 does not go very far, even in China.
In a recent research paper, Jonathan Anderson, the chief economist for Asia at rival Swiss bank UBS, estimated that to afford a mortgage, a car, a handful of luxuries including a new colour television and Nike trainers, as well as basic subsistence, an urban household of three would need to earn US$18,000 a year, or US$6,000 each.
He reckons that just 25 million consumers, or 2 per cent of China's population, fall into this bracket, and that they spend only between 1 and 2 per cent the amount of US consumers.
In a separate study, published in December, Arthur Kroeber of specialist research house Dragonomics came to a similarly gloomy conclusion. He took as his consuming class the inhabitants of China's three urban areas where gross domestic product approaches or exceeds US$5,000 per head. This gives about 37 million households with an average annual expenditure of US$5,540. That equates to annual spending of US$205 billion, or just 3.8 per cent of US consumer expenditure.
Mr Kroeber is also relatively downbeat on growth prospects. Assuming that China's economy expands at an annual 8 to 9 per cent for the next 10 to 15 years, and that the yuan continues to appreciate at about 4 per cent a year, he estimates that the value of China's consumer market will rise from US$183 billion in 2005 to US$991 billion in 2015.
That is far cry from Credit Suisse's projections. It amounts to only 18 per cent of present US consumer expenditure and equates to household spending among China's relatively well-off consuming class of only US$10,000 a year. As Mr Kroeber puts it 'the Chinese consumer is a long way from taking over the world'.