China Has the World’s Fastest Growth in Living Standards

By+JOHN+ROSS

ONE of the strangest claims about China that sometimes appear 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 in areas vital for quality of life， such as education and health. Furthermore， indicators show that compared to other countries， Chinas quality of life is better than would be expected from its present stage of economic development.

First the facts regarding these issues are 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 Chinas 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 worlds fastest consumption growth rate.

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

The pattern is clear. Chinas 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. Chinas are easily the worlds highest rates of growth of both household and total consumption.

By comparison， India， ranking second after China， registered an annual rate of total consumption increase of 5.4 percent from 1978 to 2011 and 5.9 percent 1990-2011. And its rates of increase of household consumption are 5.2 percent and 5.9 percent respectively in the two periods.

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. The U.S. growth rates of household consumption are 2.9 percent and 2.8 percent in the same periods. Chinas consumption growth 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 countrys living standards. Chinas rapidly growing numbers of smartphones， cars， Internet users， those taking foreign holidays etc. refl ect its rising living standards. However some people attempt to claim， entirely falsely， that Chinas 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， longevity also summarizes the combined impact of health， environment， consumption and other factors on human well-being.

There is a strong correlation between a countrys level of development， measured by GDP per capita， and its life expectancy – life expectancy tends to lengthen as GDP per capita rises. However other factors （health care， education， environment etc.） can raise or lower a countrys life expectancy compared to what would be expected from its per capita GDP. By comparing a countrys rank in world GDP with its rank in life expectancy， it is possible to know whether these other factors are leading to a countrys people living longer or shorter compared to what would be expected solely from its economic development level.

For example， Zambia ranks 98th in the world in GDP per capita， but 110th in life expectancy – lower than would be expected given its level of economic development. In contrast， Spain ranks 27th in GDP per capita but 5th in life expectancy. Such differences indicate that the consequences of health care， environment etc. are better in Spain， and worse in Zambia， than would be expected from their overall level of economic development.

Table 2 shows the world ranking of G7 and BRIC countries in GDP per capita and life expectancy. China rates 86th in GDP per capita but 75th in life expectancy –higher than would be expected from its level of economic development. When looking at other countries， the gap between GDP per capita and life expectancy is even more positive in Italy， Japan and France， and lower than China in the U.K.， Canada， India， Germany， Brazil， the U.S. and Russia. The countries which have by far the worst results are the U.S. and Russia.

As people in China live significantly longer than would be expected given its economic development level， any claim that Chinas rapid rise in consumption is more than offset in terms of rising living standards by health， environment or other considerations is clearly false. The evidence is clear that environmental， health and other fac- tors affecting health quality in China are superior to what would be expected of its level of economic development.

None of this constitutes grounds for complacency. What have been analyzed here are growth rates， not absolute levels. Chinas life expectancy （73.5 years） is still significantly behind the U.S. （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 the developed economies.

Nevertheless， China is developing from a situation where in 1949 it was one of the worlds least developed countries. It is therefore ridiculous utopianism， which in practice would lead to 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 worlds fastest consumption growth， why is the totally erroneous statement made that Chinas consumption is underdeveloped？ Such claims commit the elementary mistake of confusing Chinas growth rate of consumption， the worlds highest， with the percentage of consumption in GDP –which is low in China. But what counts for change in the populations living standards is how fast consumption is growing， not the percentage of consumption in GDP. For example， the percentage of consumption in GDP of the Democratic Republic of Congo is an extremely high 89 percent， but it is the worlds poorest country for which data exists！

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