China is the worlds more populous nation, with it's capital in Beijing and population: 1.4 billion, currency: Renminbi, President: Xi Jinping. Chinese shoppers recently spent a record $25bn in Singles Day, the annual event for single people in China.
E-commerce giant Alibaba promoted the event held on 11 November and many companies offered big discounts for the 24 hour period. Singles Day is four times bigger than Cyber Monday and Black Friday, the US calendar shopping days.
Looking back on how we got here, previous China ambassador from Mexico, made a few comments and insights on the economic and political challenges facing China, drawing his expertise from Mexican history. Mexico and China have distinct differences but Mexican past economic history may give some useful template to gain a deeper understanding of China. Many analysts do not give enough coverage to Mexican history or other emerging nations' economic history.
Many people often take Japan and US as references to compare against China even as the countries have different political institutions. There are also vast different in the nations' wealth, both quantitatively and qualitatively. In accordance to IMF, US GDP per capita is 7.2 times more compared to China GDP per capita and US households income per capita is 11 times more compared to China household income per capita. Japan GDP per capita is 4.8 times more and household income per capita is 6 times more than China. Mexico GDP per capita is 1.4 times more and household income per capita is 2 times more than China.
China's strategy of rebalancing its economy is to close the differences between GDP per capita and household income per capita. There are some advancement in China's rebalancing strategy from the China consumption level. For the 1st three quarters in 2015, national income per capita for whole of China experienced a 7.7% growth. It was 0.1% higher compared to 1st half of 2015. Real GDP seems to be growing at 6.9% per year. Nominal GDP seems to be growing at 6.2%. This seems that household income per capita is growing faster than GDP, about 0.8% more. This is assuming growth in population is stagnant.
The rebalancing outcome is showing up the in the reversal of gap between household income growth and GDP growth. After many years where GDP growth far exceeds household income growth or consumption growth, reversal is important to enable consumption proportion of GDP to return to safe and healthy levels. However, the narrowing of gap is not fast enough to provide a meaningful balance when President Xi steps down at the end of his term in 2023. There are many ways to calculate household income proportion for GDP. There is no one best method. In accordance to established sources, household income as a % of GDP has hit bottom in 2011 at 41%.It is currently on the rise, which will reach 44% in 2014. Another estimate puts the share at 60% in 2011. There is definitely some discrepancy in the data.
If the household income is about 50% of GDP, the % will increase to 53% in 2023 with 8 years of GDP growth at 6.9% and household income growing at 7.7%. The level is only 3% higher and way below the modern day average. China will still be heavily reliant on foreign investment and surplus in its current account. It will take at least 25 years for household income to rise by 10% of GDP, which is the bare minimum for real rebalancing target.
It will take at least 10 to 15 years for sufficient adjustment to China's economy even the gap is closing at two times the speed. Its economy will only return to more sustainable growth with the scenario happening. Unless more radical economic policies are executed to fasten the household income growth and it consumption proportion of GDP, and unless more are being done to step up wealth transfer from state to household sector, we will not be able to see enough rebalancing for another 10 to 15 years.