Domestic Consumption Remains Leading Driver of Economic Growth

Robert Hsu, August 27, 2009

For the first time, China has risen to become the world's largest exporter, just squeezing out Germany in the first half of this year.

But it remains a very close battle -- it's impossible to know for sure which country will come out on top by the end of the year or in 2010. In the first half of the year China exported $521.7 billion worth of goods. Germany, which has enjoyed the status of world's biggest exporter since 2003, exported just $521.6 billion.

Despite the fact that China has surpassed Germany as the largest exporter in the world and expectations are for China's foreign trade to global trade to increase from the current 8.7% to a full 10%, China's economic growth isn't being driven by exports any more. Sure, exports play a role in China's economy, but today, domestic consumption is the leading driver of economic growth in China.

It's a common misconception that China's economy is export-driven and that Chinese save and don't spend. But there are currently 1.3 billion people in China -- that's more than four times the population of the United States. So what we must understand is that even if the average Chinese citizen consumes only one-fourth as much as the average American, China would still consume as much as America.

Because of the Chinese ability to spend, almost all of the country's economic growth has come from domestic consumption and investment over the years. In fact, China has been the largest economy in 18 of the past 20 centuries due to its strong consumer spending. Plus, with China's economic emergence, Chinese are growing wealthier -- wages rose by nearly 10% on average every year in the past decade. That means the ability of Chinese to spend is also growing, and high-end sectors, in particular, have benefited nicely from this increase in domestic consumption.

Even now, Chinese domestic consumption is still growing at 15% this year -- in spite of the global economic slowdown! I've actually witnessed the buying power of the Chinese firsthand on my recent trips to China. High-end hotels main clientele are affluent Chinese, and pricey restaurants were packed with customers. That is why our most important investment strategy in China Strategy currently focuses on domestic consumption instead of exports.

It's a strategy that has paid of well for us. Year to date, our domestic consumption plays have performed exceptionally well. Just take a look:

The Google of China, up 160%
The Leading Real Estate Services Company in China, up 132%
China's Leading Online Game Developer, up 126%
China's Number-One Online Travel Company, up 106%

And that's just a sampling of the profits my China Strategy subscribers have banked this year by focusing on Chinese domestic consumption. To learn more about how to profit in China and receive weekly and monthly updates with my most recent advice on our investment opportunities, join China Strategy today!