Emerging markets - China

China banner

“Let China sleep, for when she awakes she will shake the world” - Napoleon

China’s importance to the global economy has grown dramatically over the last decade but on a per capita basis remains a relatively poor country. Although it is now the world’s second largest economy, China is yet to experience the rapid acceleration in consumption that has typically been enjoyed by developing nations at similar stages of development.

As such, the next 10 years is likely to see domestic consumption become the primary driver of economic growth, taking over from exports and infrastructure investment.

Case Study – Auto consumption revving-up

Passenger car fleet 2000-2008

China’s vehicle sales have surged since 1999 as economic growth averaging more than 9% a year has led China to overtake the US as the world’s largest auto market.

A quick look at the statistics below gives a quick insight into the scale and impact of changing consumption patterns in China and their effect not only on the domestic market but on the global economy as a whole.

  • Only 4% of Chinese have cars, compared to 26% of Koreans, 44% of Americans and 46% of Japanese.
  • For China to reach the same level of vehicles as Korea, it would require a 766% increase from its current level to 332.5 million units.
  • With an average cost of a car in China currently at US$ 14,000 that would mean an additional US$ 411 billion of automobile spending, roughly equivalent to Sweden’s entire gross domestic product in 2009.
  • A typical car requires 875kg of steel, 62.5kg of rubber, 127kg of iron, 95kg of aluminium, 17.5kg of copper and (as emissions standards become stricter) increasing amounts of Platinum Group Metals.
Source: UBS Investment Research, February 2010