China's Growth Already Has A Big Home-Grown Driver - Morgan Stanley

Chrissy Coleman

5 March 2013

China’s official household consumption data is not what it seems says Morgan Stanley. According to the bank, calculations have systematically under-estimated consumption, possibly missing out on $1.6 trillion, suggesting that China’s growth is already being driven by household expenditure.

In its latest Asian Insights report, the bank challenges China’s household consumptions statistics, saying they do not match the experience of other large economies taken during growth phases. In fact, Morgan Stanley’s recordings suggest The Mainland’s consumption habits are starting to look similar to its developed market peers.

Policymakers and commentators have made a big point about how China's growth has been largely fueled - until recently - by exports, an issue that has at times been controversial, such as in encouraging protectionist sentiment in countries like the US.

China’s economic growth has generally been understood to be largely export-driven (2002-2007) and then investment-driven (2008-2012). According to official data, China now has a Gross Fixed Capital Formation / GDP ratio of 49 per cent, much higher than other large economies during their rapid growth phases. It has a household consumption / GDP ratio of 35 per cent, much lower than any other large economy and below other large economies during their rapid growth phases, the report said.

“In our view, using detailed bottom-up data on consumption items, China’s official statistics have not kept pace with major structural changes in household consumption. This is particularly the case in modern sectors such as housing, auto, tourism, healthcare, and insurance services,” Morgan Stanley said in the report.

Consumption driving growth

The bank’s data suggests that the transition to consumption-driven growth has already been under way for some time.

“ have grown rapidly, so there has been an accumulating error, which we estimate amounted to $1.6 trillion in 2012 (suggesting an adjusted household consumption / GDP ratio of 46 per cent),” the bank said.