China set for spending boom

25 October 2010

BEIJING: Multinational companies must ramp up their activities in China over the coming five years, as consumer spending is set to rise dramatically in this period.

Jim O'Neill, chairman of asset management at Goldman Sachs, and who coined the term BRICs to describe Brazil, Russia, India and China, suggested China's rapid growth is crucial to the global recovery.

"Given the challenges the US has got, especially during the crisis, it's got to help the US get out of this situation," he told CNBC.

"For some US multinationals, it's a fantastic thing because they're at the forefront of it, participating in it and benefitting from it."

Robert McDonald, chief executive of FMCG giant Procter & Gamble, recently stated China's economic expansion would strengthen the US financial and job markets, a view shared by O'Neill.

"It's often seen politically that this is a threatening, challenging world," he said. "I think that's the wrong way of thinking about it."

In evidence of this, O'Neill predicted Germany's exports to China could match or overtake outward flows to France within 15 months.

"The next five years are all about China," he said. "Maybe the crisis was good, because it forced the Chinese to realise they can't depend on exporting to the US any more. They've got to consume."

"The growth in the consumer market in China in the next few years is just huge."

Among the key contributors to this trend will be rising wages, greater protection for urban migrant workers and the creation of a robust social security system.

"It's allowing people to move around China with more belief, and calm, and happiness, and develop the habits of people who live in cities already," said O'Neill.

While most major US corporations have made efforts to boost their status in the country, these initiatives should be redoubled.

"There are many US companies that are doing pretty well there. Many brand leaders. Procter & Gamble. Apple," O'Neill added.

"Getting involved in things that relate to the Chinese consumer ... is the right thing for the next five years."

To support this assertion, O'Neill cited a McKinsey study which estimated expenditure levels in the 20 biggest emerging countries will surge from $7tr (€5tr; £4.5tr) at present to $20tr by 2020.

"I think that's basically right, and at the core of it is China," he concluded.

Data sourced from CNBC; additional content by Warc staff