2010-01-17

Here come the Chinese consumers

Ha Jiming of chief economist for China International Capital Corp writes in:Wait -- Don't Tell Me Chinese Don't Consume
China's 20- to 30-year-olds currently make up more than one-sixth of the population, meaning China is entering a golden decade for weddings. This demographic characteristic will drive demand for real estate and wedding-related consumption, as well as consumption related to travel, food, beverages, clothing, automobiles and entertainment.

The propensity to consume among young adults in China is considerably higher than their parents. Moreover, parents often “subsidize” consumption during their children's marriage and early employment phases. Currently, the group with the highest propensity to save (those born before 1970) is transferring life savings to the generation with the highest propensity to consume. This inter-generational transfer of income will speed China's consumption growth over the next few years.
There several more points, but as the saying goes, demographics is destiny. He also writes what I've said about a stronger RMB:
Finally, exchange-rate appreciation would benefit consumers. This is not only because yuan appreciation would stimulate demand for imported consumer goods, but more importantly because it would force more enterprises to move from coastal to inland areas, promoting urbanization and increasing employment. People in the inland generally have lower incomes but high marginal propensity of consume.
China's propensity to save is due to policies which favor saving over consumption, namely an undervalued currency. The opposite effect was seen in the U.S., where an overvalued currency favored consumption.

Now the question is, which companies are best positioned to benefit from higher consumption?

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