China has the world's fastest growth in living standards

Summary

China has the world’s fastest growth of consumption while its population lives significantly longer than would be expected from China’s level of economic development. These facts clearly establish China has easily the world’s fastest rise in living standards.

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One of the strangest claims about China that sometimes appears in the media is that it has a slow growth of consumption and living standards. In reality China has the fastest growth of consumption of any country in the world – whether this is measured only by household consumption or includes government consumption on areas vital for quality of life such as education and health. Furthermore, indicators show that compared to other countries, China’s quality of life is better than would be expected from its present stage of economic development.

First the facts regarding these issues will be established and then they will be analyzed.

Table 1 shows the growth rates of consumption, both total and household, for the G7 and BRIC economies. These economies are selected for comparison as, given China’s size, the appropriate comparison is with major economies – not Caribbean islands or African states. Nevertheless including small economies would make no difference – China would still be seen to have the world’s fastest consumption growth rate.

The fundamental period of comparison used is from 1978, the beginning of China’s economic reform, to 2011 – the latest date for which figures are available for all countries. However, as data is not available for Russia before 1990, a comparison for 1990-2011 is also given.

The pattern is clear. China’s average annual increase in total consumption was 7.9 percent in 1978-2011 and 8.5 percent in 1990-2011. The increase in household consumption in the same periods was 7.7 percent and 8.1 percent. China’s are easily the world’s highest rates of growth of both household and total consumption.

By comparison, India, ranking second after China, has an annual rate of total consumption increase in the same periods of 5.4 percent and 5.9 percent and its rates of increase of household consumption are 5.2 percent and 5.9 percent.

The U.S., by comparison, had an annual growth rate of total consumption of 2.7 percent in 1978-2011 and 2.5 percent in 1990-2011. U.S. growth rates of household consumption are 2.9 percent and 2.8 percent in the same periods. China’s consumption growth rate was therefore almost three times as fast as the U.S.

It is obvious that such a rise in consumption – an increase in quantity and quality of food, housing, holidays, phones, cars, furniture, health care etc. – is a decisive factor in determining any country’s living standards. China’s rapidly growing numbers of smartphones, cars, internet users, those taking foreign holidays etc. reflect its rising living standards. However some people attempt to claim, entirely falsely, that China’s dramatic increases in consumption may be offset by other factors – for example weaknesses in health care, deterioration in the environment etc.

Fortunately, this can be tested objectively. Life expectancy, as is well known, is a very sensitive indicator of overall living conditions. As well as most people having a direct goal of living longer, length of life also summarizes the combined impact of health, environment, consumption and other factors on human well-being.

As people in China live significantly longer than would be expected given its economic development level any claim China’s rapid rise in consumption is more than offset in terms of rising living standards by health, environmental or other considerations is false. The evidence is clear that environmental, health and other factors affecting health quality are superior in China than would be expected for its level of economic development.

None of this is grounds for complacency. What have been analyzed here are growth rates, not absolute levels. China’s life expectancy (73.5 years) is still significantly behind the US (78.6 years) let alone Italy (82.1 years) or Japan (82.6 years). China must still undergo a prolonged period of economic growth before it achieves the highest levels of developed economies.

Nevertheless China is developing from a situation where in 1949 it was one of the world’s least developed countries. It is therefore ridiculous utopianism, which in practice would lead to the wrong policies, to believe China can in one step achieve the highest levels of the most advanced economies. The relevant question is whether China is developing living standards and consumption more rapidly than other economies, in which case it is catching up with them, or whether it is developing more slowly than other countries – in which case it is falling behind.

But given that China has the world’s fastest growth of consumption, why is the totally erroneous statement made that China underdevelops consumption? Such claims commit the elementary mistake of confusing China’s growth rate of consumption, the world’s highest, with the percentage of consumption in GDP – which is low in China. But for change in the population’s living standards what counts is how fast their consumption is growing, not the percentage of consumption in GDP – for example the percentage of consumption in GDP of the Democratic Republic of the Congo is an extremely high 89% but it is the world’s poorest country for which data exists!

The conclusion is therefore absolutely clear. China has by far the fastest growth rate of consumption in the world, together with life expectancy significantly above that which would be expected given its level of economic development. China, in short, has easily the world’s fastest rise of living standards.

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An earlier version of this article originally appeared in Chinese on Sina Finance. This article was originally published in English by China.org.cn.