Is China Poised for a Leap Like Korea in 1988?

China's consumer market is now very similar to Korea's when Seoul hosted the Olympic Games in 1988, China experts say. The two are markedly similar in terms of income level, savings rate, urbanization, and the number of cars per head.

Based on Korea's experience of a sudden explosion of the consumer market after 1988, China is expected to see similar drastic changes. While the size of the market and spending behavior are different in the two countries, there are signs of a decrease in savings and increased spending in China that will strike Korean companies as familiar.

The Chosun Ilbo conducted a comparative analysis of various indices in today's China and Korea around 1988 along with Daishin Securities and IBK Investment & Securities on Dec. 3.

Experts note that China will surpass over US$4,000 in per-capita gross national income this year. Its per-capita GNI was $3,315 in 2008. For Korea, GNI per capita in 1987 was $3,321, jumping to $4,435 in 1988 and to $5,419 in 1989.

The two countries then and now are also similar in terms of GDP by purchasing power parity. Korea's per capita GDP by PPP was $5,850 in 1987 and broke the $6,000 mark next year with $6,630. China's GDP per capita by PPP was $5,970 in 2008, and is likely to go over US$6,000 soon. Yoon Chang-yong of IBK Investment & Securities said, "Korea shifted from being investment-oriented to spending-oriented after surpassing $6,000 in per-capita GDP by PPP. China's purchasing power, too, is likely to soar."   

China's car market also resembles Korea's in 1988. In 1987, 39 out of 1,000 Koreans had their own car, but that rose to 48 per 1,000 people, and only four years later had jumped to 100 per 1,000. In China, 37 people in 1,000 had a car in 2008, which is likely to grow to over 40 in 2010. "Sales of cars in China are likely to increase drastically," Yoon said.

The biggest difference is in urbanization. Because China is so huge and populous, urbanization rather resembles Korea's in the early 1970s. The urbanization rate in China at the end of last year was 45.7 percent, less than the 48 percent Korea had in 1975. BOC International, Bank of China's global investment banking arm, predicts the urbanization rate in China will reach 49 percent in 2015 and 60 percent in 2030, bringing another likely boost in spending.

Samsung Securities said that China is in transition to a "mega-spending country" as a result of progress in urbanization, expansion of middle class, government measures to boost consumption, and increase in savings.

But doubters say the Chinese spending boom will not last as it is a product of government-led stimulus measures, and Beijing may implement retrenchment policies to prevent a bubble in asset prices. And while there are a myriad other factors that make it difficult to compare China now with Korea then, experts agree that Chinese consumers form a vast market with great potential for Korea.