In the recent years, China's economic growth has been on the slow pace. Looking at its structure however, the proportion of final consumption expenditure in the whole economy continues to grow. Following the transformation of China's economic growth structure, the contribution of final consumption to GDP growth has risen to 76.2%. At the same time, policies that focus on promoting consumption also continue to expand, including the promotion of automotive consumption and those that promotes culture and tourism. Such policies hope to further optimize the consumption environment and stimulate China's domestic consumption potential. As such, consumption growth is steadily gaining a foothold in the country's economy. Simultaneously, given the changes in consumption, it a necessary for the country to study consumption from a new perspective.
First, one must understand that the overall consumption structure has changed significantly and that extra attention must be given to the noticeable increase in service consumption. Up to this point, reference and statistical indicators for observing consumption expenditure have relied mostly on total retail sales of social consumer goods. That said, such indicators do not include much services consumption expenditure. In recent years, the growth of total retail sales concerning social consumer goods has slowed down, which gives off the wrong impression that the Chinese consumption expenditure is on a decline. In actual truth, the growth of service consumption including the education, healthcare, cultural and finance sector that were not included in the total retail sales of social consumer goods have demonstrated that China's service consumption expenditure is not only becoming much more prominent but it is also a driving force to the growth of overall consumer expenditure.
Since 2012, several studies have found that the growth of total retail sales of social consumer goods has been trending downward, consistent with the slowdown of GDP growth. Meanwhile, the contribution of final consumption to GDP growth has shown a steady upward trend. The occurrence is a result of the rapid growth in service consumption. Under the adjustment of overall consumption structure, even when total retail sales of social consumer goods declines year after year, the growth rate of consumption expenditure does not slow down. Data from the Chinese Ministry of Commerce shows that in 2018, service type consumption expenditure has grown approximately 35%, a 26 percentage-point increase compared to 2017's 9% growth rate. During the first three quarters of this year, service consumption expenditure accounted for 50.6% of household final consumption expenditure, amounting to half of their total expenditure. The Ministry of Commerce also pointed out that China's Engle coefficient has dropped below 30%, household expenditure has shown an "upward" trend, where the proportion of daily necessities consumption such as food and clothing dropped significantly. All these show that China's consumption patterns have shifted toward service consumption expenditure, all of which are causing the education, medical care, cultural and tourism sectors to grow rapidly, indicating that service consumption has much potential to develop further.
In addition to that, the development of e-commerce and mobile payment has also led to a change in the consumption patterns, namely the increase in online consumption. Based on 2018's total retail sales of social consumption (not including certain service consumption) alone, China's online retails were RMB 906.5 billion in said year, a 23.9% increase compared to the previous year. Among them, the online retail sales of physical goods were RMB 70198 billion, an increase of 25.4% and accounting for 18.4% of total retail sales of social goods. In the same year, retail units above the designated size such as supermarkets, general stores, specialized stores and exclusive stores have grown 6.8%, 3.2%, 6.2% and 1.8% respectively over the last year. In January to October 2019, China's online retail sales amounted to RMB 82307 billion, an increase of 16.4%. Among them, online retail sales of physical goods were RMB 65172, an increase of 19.8%, and accounting for 19.5% of the total retail sales of consumer goods. Alibaba and JD.com, two of the biggest e-commerce companies in China played a major role during the country's explosive growth of e-commerce. On one hand, it can be seen that the proportion of online consumption is increasing. On the other hand, online consumption has substituted most brick-and-mortar retail companies, which caused a slightly distinct transformation on the retail industry.
It is worth noting that the rapid growth of household debt has a restraining effect on consumption. At the end of 2018, the country's household debt exceeded RMB 43 trillion (accounting roughly for 90% of disposable income). From 2008 to 2018, China's household debt ratio increased by 33%. Some researches have shown that household debt was positively related to the growth rate of housing prices and balances of personal home loan. At present, the country's personal home loan balance is RMB 25.75 trillion, about 60% of the total household debt. Considering that the maturity of China's social security system is relatively low, its households still need to rely on their savings for retirement, and the household leverage ratio in the future would not have much room to grow. Therefore, the promotion of household consumption should be focusing on increasing household disposable income.
From the perspective of ANBOUND's researchers, China's changes in consumption situation have shown that the country is moving from a "production-based society' to a "consumption-oriented society". Judging by the current driving force of consumption to economic growth as well as the proportion of the service industry in the economy and the consumption structure, China has met the characteristics of a consumer economy. The future transmutation of consumption and its development will bring out a series of others changes, including economic and production activities, urbanization to name a few. All of which will be different from the past, hence the need for the country to pay close to the policies and make adjustments wherever needed.
It should be pointed out that the driving force for economic growth has shifted from investment and production to urbanization and service industry growth. The focus of economic policies should be promoting household consumption, building up a consumer market, developing the service industry and expanding the market space. Compared to production capacity, the market space and consumer market are more competitive which enable China to adapt to the situation accordingly and maintain a sustainable driving force of growth. At the same time, to achieve sustainable enhancement of the vitality in urban space, prosperity of urban streets and commerce, and increase of economic output of urban spaces, the development of cities needs to shift from an expansion in quantity to the renewal of existing cities, thereby increasing the cities' consumption space and supply, and creating internal growth for urban development.
Final analysis conclusion:
Presently, consumption is the main engine that determines the direction of China's economy. Therefore, is it vital important for the country to fully understand the changes and trends in consumption in order to gain a firm grasp over the pattern of consumption and economic development, thereby enabling China to adopt suitable policies to stimulate economic growth.
