London: China will become the world’s largest economy in 2024, according to new analysis carried out by IHS Inc. (NYSE: IHS), the leading global source of critical information and insight.
“Over the next 10 years, China’s economy is expected to re-balance towards more rapid growth in consumption, which will help the structure of the domestic economy as well as growth for the Asia Pacific (APAC) as a region,” Rajiv Biswas, chief Asia economist for IHS, said.
“The World Economic Forum’s upcoming Meeting of the New Champions in Tianjin, China, will focus on science, technology and innovation. These are some of the key sectors that will be crucial in helping to transform China’s economy from the low cost manufacturing export-driven economy of the past three decades into a higher value-added economy, driven by domestic consumer demand,” Biswas said.
Chinese consumer spending is forecast to grow at an annual average rate of 7.7 percent per year in real terms over the next decade becoming a key engine of global consumer demand and world growth, according to IHS.
In 2024, China will overtake the United States in terms of nominal gross domestic product (GDP) measured in U.S. dollars (USD). In 2024, IHS forecasts that China’s nominal GDP will be 28.25 trillion (USD) to the US’s 27.31 trillion (USD).
“In 2025, if we were to take a global economic snapshot, China’s economy will play an even bigger role as a key driver of global trade and investment flows,” Biswas said. “IHS forecasts total Chinese consumer spending to grow from $3 trillion (USD) to $11 trillion (USD) by 2024 at an annual average rate of 7.7 percent per year. China’s share of world GDP is forecast to rise from around 12 percent in 2013 to 20 percent by 2025.”
With total Chinese consumer spending having already exceeded $3 trillion (USD) in 2013, the impact of the rapid growth of Chinese consumer spending is already having a transformational impact on many segments of the global economy.
The projected future rapid growth of Chinese consumer spending over the next decade will propel the Chinese consumer market to become a $10.5 trillion (USD) consumer market by 2023, around three times larger than Japan, which is projected to be a $3.7 trillion (USD) consumer market.
India, which also is expected to be a fast-growing consumer market but starting from a much lower base, is expected to be broadly similar in size to the Japanese consumer market by 2023.
“The transmission effects of the strong growth in Chinese consumer demand are already being felt throughout the Asia-Pacific region,” Biswas said.
One notable impact has been through Chinese international tourism visits to other Asian countries, which has surged over the past three years.
Total Chinese tourism spending abroad rose by 26 percent in 2013 to $129 billion (USD) making China the largest source market for international tourism spending globally, according to United Nations World Tourism Organisation estimates.
The impact of this rapid growth in Chinese tourism was felt in many Asian countries, most notably Thailand, where Chinese tourism visits rose by 68.8 percent in 2013 to a total of 4.7 million visitors. Chinese tourism visits to other ASEAN (Association of Southeast Asian Nations) countries also showed strong increases, albeit not as dramatic as for Thailand.
“The implications of an additional $7 trillion (USD) being added to annual Chinese consumption by 2023 have tremendous positive implications for APAC regional growth, as rapid growth in Chinese consumption drives demand for exports of commodities, manufactures and services from other APAC countries to China, with ASEAN countries expected to be major beneficiaries of the growth in Chinese consumption,” Biswas said.
ASEAN countries already have seen their regional exports to China growing at an average annual rate of 20 percent per year over the last decade.
The further rapid expansion of Chinese consumer demand will provide a significant boost to ASEAN exports and GDP growth over the long-term. Other APAC economies with strong trade ties to China, such as South Korea and Australia, also will be important beneficiaries from the rapid growth of Chinese consumer demand.