China's First Steps Toward More Consumption

For the last twenty five years or so, in its rush to modernize, China has stressed Investment and Exports over Consumption. 2011 was the first year in which consumption as a percentage of GDP exceeded that of Investment 49.2% vs 48.2% as can be seen in the first chart. The trend has continued into this year. Quarterly data on GDP by expenditures are not available for China. One must await for the annual figures. In the meantime, data showing the percentage points of the components of growth are available on a quarterly basis. Ever since the first quarter of 2011 consumption has contributed more to GDP than investment, as can be seen in the second chart.

China has a long way to go to even approach the consumptions ratios of the developed nations. These can be computed from the national accounts data in any of several Haver data bases, G10, for example is one. Consumption in G10 includes private expenditures plus government expenditures and is therefore comparable with the China data on consumption. Using the data in G10, we computed the consumption ratios for the U. S. and the Euro Area and are shown in the third chart. In 2011, the consumption ratio for the US was 86.9% and for the Euro Area, 77.8%