China is making strides toward becoming a consumer-driven economy

The economic backdrop to the 18th national congress of the Chinese Communist Party may not have been all sunshine. But the continuing robust growth of the world’s second biggest and most dynamic large economy should have provided cheer for Party members as they gathered in Beijing to appoint the next generation of China’s leadership. And while the new leadership’s stance on some issues may be widely debated, there already appears to be a consensus that the country can navigate to a slower but more sustainable growth path marked by greater productivity and consumer input over the coming decade—and there are early signs it is moving in that direction.

In this paper we provide insights for Chinese and international business leaders into how the profile of China’s economy is likely to change on this evolutionary path, how this will play out in the country’s cities, which are key drivers of growth, and what are some implications for their businesses. Our macroeconomic perspective on China is that the country will maintain growth momentum by transitioning from an investment-led economy into a consumptiondriven and service-driven economy by 2030. As China’s economy makes this transition and continues to expand, the consensus of GDP projections that we have compiled suggests that the economy’s growth rate will be, however, slower than in the last decade.

Markers of China’s progress toward the goal of a more economically developed society will be higher productivity of its workers and higher productivity and greater efficiency on the part of government. These trends will result in better-paid employment and a greater share of national income in the hands of consumers—the key determinant of China’s future economic profile. This is the scenario that the experts and international executives whom we regularly survey have identified as the most likely for China.

For businesses, there are clear opportunities to capture through differentiated approaches to the growing cities’ markets, while allocating their resources in an optimized way to the emerging hub-and-spoke city clusters. The increasingly affluent population of Chinese consumers presents huge market potential, but China’s demographic trends will create a more demanding labor landscape in terms of remuneration and employee requirements, and businesses need a comprehensive understanding of the country’s economic environment. Successful innovation in China is similarly likely to depend on deploying this deeper perspective. Companies that take the time to build an understanding of this key market will reap the rewards.