China’s Economic Growth and Internet Consumer Finance

Author: Fan Gang, President of CDI

Editor’s Note: China’s economy has seen strong performance in the first quarter but still needs a few years for consolidation due to overcapacity and other problems caused by an overheated economy in the past. After that, China’s economy shall enter into a new round of growth, hopefully within the proper range of 7%-8%. China’s economic growth still has a long way to go since consumption boom is just beginning.

A major engine for China’s economy is the constant rise of consumption, which has been growing at a faster rate than ever before. Consumption now accounts for around 62% of the GDP, up from around 52% in the past, and individual consumer spending is now around 45%, up from 35% in the past. Compared to developed countries, China still has huge potential. Consumption is taking up an ever bigger share of the economy and China’s consumption boom is just beginning. This trend is in line with the rule of economic development regarding the shift from production, savings and investment at the earlier stage of development to consumption at the later stage. The rise of China’s middle class and per capita GDP naturally contributes to the rise of various consumption. Despite the serviced-based consumption such as tourism and fitness, China's consumption is still largely characterized by a fairly huge proportion of material consumption. Therefore, China's manufacturing industry still has tremendous potential for development.

China’s consumption growth is highly dependent on three social groups. The first consumer group is the younger generation. Firstly, young people are confident in their future income. Secondly, many young people are the only child in their family, which means they might have four elders in the family who tend to save money for the youngest generation and share a great deal of their burdens, providing them with the consumption support. The second consumer group is the financially well off retirees, who, with adequate time and money, are prepared to travel and enjoy life. The third consumer group is middle-age people. With the introduction of the second-child policy, education and housing in the school district will give a huge impetus to consumption. Therefore, the next round of China’s economic growth will rely more on consumption instead of investment.

The internet represents the greatest revolution in science and technology, reduces information cost, and brings new impetus for development. The internet successfully connects credit, risk, and data, promoting the growth of consumer finance and improving the ecosystem of the financial sector. Preferred terminology is “industries plus the internet”, and not “internet plus industries”. The regulatory authorities shall also actively adapt to new advances in technology so as to promote sustainable and healthy development of industries.