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China on Way to 2nd Biggest Consumer

Rising spending by Chinese consumers will make China the second-largest market in terms of household consumption in the world by 2014, next only to the United States, said a study by Credit Suisse First Boston.


China's consumption is likely to grow 18 percent annually by 2014, against an average growth of 11 percent globally and 2.1 percent in the United States, CSFB estimates.


The estimate is based on its assumption that the Chinese economy will expand 7 percent annually and the proportion of consumption in the gross domestic product will rise 5.5 percentage points a year in the runup to 2014.


By 2004, the Chinese consumer market was the seventh-largest in the world, after the United States, Japan, Germany, the United Kingdom, France and Italy.


The explosive growth prospect will greatly appeal to global consumer product firms like Procter & Gamble and McDonald's, but not everyone would see their China pie grow quickly.


"Consumption on some goods like personal computers will overtake the US to be the world's largest in about four to five years, but big-ticket consumption like expenses on air travel and automobiles will take a longer time," said Jonathan Garner, the London-based managing director of global strategy at CSFB.


The expanding consumption will help remodel China's economy to be consumption-driven rather than being dominated by exports.


Despite the tendency to spend more, 2,700 people interviewed by the investment bank in eight major Chinese cities will still save 26 percent of their income — the top priority among nine categories of income use.


The high savings rate is led by the Chinese frugal living habit, the lack of a social-welfare system and a rapid rise in medical and educational costs, said Tao Dong, a chief economist at CSFB.


"Savings won't fall unless the problems are resolved," said Tao. "But the savings against GDP will drop slowly."


Chinese spend a quarter of their income on food, followed by clothing with nine percent and eight percent on education, according to the study.


(Shanghai Daily October 13, 2005)

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