In our third episode of our series Rethinking Asia, we spoke with Andy Rothman, an investment strategist for Matthews Asia. Prior to joining Matthews Asia, he worked for 20 years in China, and now uses that experience to shape the firm's thoughts on China from an investment perspective.
Andy helped us understand the growth and current state of Chinese domestic consumption. We discussed China's efforts to rebalance away from investment and exports towards consumption, and what future growth will look like in China. Some of our main takeaways from our conversation with Andy include:
- In 2017, two-thirds of economic growth in China came from consumption, largely because of households.
- Household incomes have risen by 120 percent in the past decade, compared to nine percent over that period in the U.S.
- Driven by smartphone adoption and non-cash payment platforms, online retail sales in China have continued to experience incredible year-over-year growth.
- This healthy consumer story is supported by Chinese households' habit of saving 30 percent of their incomes – to pay for education expenses and compensate for a weak social safety net – and by their sunny outlook on future growth.
- In Rothman's view, elevated consumer spending on housing is less likely to cause a crisis because, unlike in the U.S. housing market of the 2000s, Chinese buyers must put down a minimum 20 percent down payment and bank due diligence is quite strict. Aging demographics in China have put an end to double-digit growth rates, but real estate isn't the ticking time bomb most predict.
- The government's consistent measures to raise the minimum wage have nudged all wages higher and have had an outsized impact on the rebalancing to consumption.
The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.
