A common understanding is that the Chinese households consume relatively little and save a lot for various reasons. As the Chinese government aims at re-orienting the economy to a more consumption-based model, including by allowing faster wage increases, the world eagerly awaits the rise of China's consumption to be the next growth engine.

We saw the rapid growth of automobile and luxury goods sales to Chinese consumers in the past few years, but such sales and consumption in general seem to have slowed. What is happening with China's consumption story and when should we expect the rise of the Chinese consumers?

Actually, it may come as a surprise to some that China's consumption has already been growing very rapidly for quite some time. Between 2001 and 2011, China's consumption grew by 10 percent per annum in real terms and nearly 16 percent per annum in nominal US dollar terms, the fastest pace among important consumer markets.

This is despite the fact that as a share of GDP, consumption declined by more than 10 percentage points in the past decade, and accounted for only about 46 percent in 2011. The ratio of household consumption was only 35 percent.

As a result of rapid income growth (though not as rapid as nominal GDP), total consumption increased from US$800 billion in 2001 to US$3.5 trillion in 2011. During the past decade, we have seen a spectacular rise in consumer goods sales. One of the most prominent examples was car sales. Passenger car sales grew from 2.2 million in 2001 to 14.4 million in 2011.

Other examples included European luxury goods sales and China's outbound tourism. The latter has been growing by about 20 percent a year in the past decade, reaching US$73 billion in 2011.

Of course, as the economy slowed in the past few quarters, consumption has slowed as well. This is normal - consumption generally grows in line with household income growth, which in turn closely tracks GDP growth.

What about the rebalancing the government has promised? Should the government try to boost consumption now that export and private investment have weakened? Well, the government did cut personal income tax in September 2011, cut small business taxes in the beginning of 2012, raised pension payments and increased income subsidies to the poor, announced subsidies to energy saving appliance in May 2012, and has been expanding pension and health care insurance coverage in rural areas.

However, the above measures are not sufficient to completely offset the impact of a weak property market and the slowdown in overall economic growth, which leads to weaker consumer sentiment and slower income growth. In addition, the government has focused more on boosting investment to support growth in the short term.

Indeed, if protecting growth is a more important short-term goal, rebalancing will have to wait.

The article was the summary of a UBS research report issued on August 28. The opinions expressed are her own.

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