China’s lower-tier urban centres will be the key drivers of consumption growth during the 2020’s according to Morgan Stanley’s chief China economist.
Robin Xing sees China’s annual consumption rising to $9.7 trillion in 2030 from $4.4 trillion, with smaller cities accounting for the majority of this increase.
“Third and fourth-tier cities will contribute nearly two thirds of the increase,” said Xing to Xinhua at the sidelines of the Morgan Stanley China Summit in Beijing.
In sharp contrast marquee megacities such as Beijing and Shanghai will account for only 9% of consumption growth, second-tier cities will contribute 21% and rural areas 7%.
According to Xing third and fourth-tier cities are expected to see more rapid population increases than established metropolis, as well as narrow their income gaps, all of which will serve to boost their consumption levels.
“In contrast with dawdling first-tier cities, the number of permanent residents in smaller cities will see robust growth thanks to higher birth rates, relaxed household registration control and cheaper living expenses,” said Xing.
He expects the total registered population of third and fourth-tier cities to post growth of 2.5% per annum from 2017 to 2030, as compared to 2% for second-tier cities and 0.6% for first-tier cities.
The lower housing prices as well as better living environment will serve to boost consumption in smaller towns, by increasing disposable incomes and reducing the need for precautionary savings.
Xing is optimistic about China’s future growth prospects, pointing in particular to increased flexibility in the RMB exchange rate, the deft handling of financial tightening by regulators as well as strong exports and recuperating private investment.
He nonetheless expects an easing in GDP growth over the next few quarters follow the Chinese economy’s bumper start to 2017.