China’s rural areas key for future chemical demand

Chemical companies, Consumer demand, Economic growth, Financial Events, Oil markets

China incomes.pngIn the last of its Budget Outlook analysis, the blog today looks at the major changes underway in China. These are typical of many emerging economies, including India, and could potentially have a big impact on chemical demand.

The key issue is that China’s leadership has recognised the current export-driven development model no longer works. As Yi Gang, deputy central bank governor noted in July:

“China’s future economic growth will definitely gradually slow down. The issue for China’s economy is the quality of growth, which is why we now have to carry out structural adjustment and transform our development model.”

China’s export-driven development model meant investment in factories and urban infrastructure ‘crowded out’ personal spending. Over the past decade, it has grown at up to 30% a year, twice that of retail sales. Thus personal consumption is now only 30% of GDP, compared to 70% in the USA.

This has also led chemical companies to focus sales within China on the relatively well-off. But even in 2015, only 6% of China’s forecast 280 million households will have incomes of >$12.5k. The real mass-market will be the 73% of households with projected incomes of <$5.2k.

This market will include most of the rural population, who have been left behind over the past decade. As the chart shows, their disposable incomes today at $672/capita (red column) are only 1/3rd of those in urban areas (blue). The needs, and aspirations, of these 700m people will provide the major growth area for consumer spending.

The magnitude of this change highlights a further aspect of the uncertainty underlying the Budget Outlook this year. We do not know whether we will see global co-operation on currencies, or a collapse into protectionism. Nor do we know exactly how far, and how quickly, changing consumer trends in the USA, Europe and China will impact chemical demand.

This is why the blog believes that Scenario planning is essential this year. It is also convinced that the rewards over the next few years, for those who do it well, could be very good indeed.

PREVIOUS POST

European consumers focus on people, not things

27/10/2010

In the last of its Budget Outlook analysis, the blog today looks at the major ch...

Learn more
NEXT POST

Crude oil continues to trade in its 'Triangle'

30/10/2010

In the last of its Budget Outlook analysis, the blog today looks at the major ch...

Learn more
More posts
$60bn opportunity opens up for plastics industry as need to eliminate single-use packaging grows
17/03/2019

150 businesses representing over 20% of the global plastic packaging market have now agreed to start...

Read
Ageing Perennials set to negate central bank stimulus as recession approaches
10/03/2019

The world’s best leading indicator for the global economy is still firmly signalling recession...

Read
Déjà vu all over again for oil markets as recession risks rise
03/03/2019

Back in 2015, veteran Saudi Oil Minister Ali  Naimi was very clear about Saudi’s need to adop...

Read
BASF prepares its UK supply chain for Brexit
24/02/2019

BASF has been working with Ready for Brexit (the online platform I co-founded last year) as part of ...

Read
Companies and investors have just 30 working days left to prepare for a No Deal Brexit
17/02/2019

Companies across the UK and EU27 are suddenly realising there are now just 30 working days until the...

Read
The BoE’s pre-emptive strike is not without risk
12/02/2019

The Financial Times has kindly printed my letter below, arguing that it seems the default answer to ...

Read
IKEA heads into the circular world with furniture subscription trial
10/02/2019

“Once upon a time, Granny and Grandad used to go to a large shop on the motorway to buy their ...

Read
Fed’s magic money tree hopes to overcome smartphone sales downturn and global recession risk
03/02/2019

Last November, I wrote one of my “most-read posts”, titled Global smartphone recession ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more