OECD Predicts China Top Economy By 2016, Consumer Spending To Soar

 | Nov 22, 2013 12:06PM ET

Get ready for the massive consumer push by the Chinese over the upcoming years and decades as the government strives to drive the economic engine via consumer spending.

The modification to the current one-child policy, which I recently discussed in these pages, will help create an even bigger middle class in the country that will drive up the demand for goods and services.

The Organization for Economic Cooperation and Development (OECD) has become more bullish on China, and predicts Chinese gross domestic product (GDP) growth will rise to 8.2% in 2014, driven by a rise in domestic consumer spending. (Source: “OECD sees China growth accelerating in 2014,” China Daily, November 20, 2013.) The OECD even goes as far as to say the Chinese economy could surpass the U.S. economy to become the world’s biggest economy by 2016. While this is faster than I expect, it’s clearly not impossible, given the rise in income levels and spending.

The middle class in China will drive the economic engine of the country, unlike what we are seeing in America with the declining spending prowess of the middle class. In fact, what we are seeing in China is similar to the power of the U.S. middle class that drove the Industrial Revolution in the late 1800s and early 1900s.

If China can emulate what happened in the U.S. then, there could be some golden years ahead for the Chinese economy.

To play the expected rise in consumer spending in China, which is increasing at double-digit rates and is likely to continue at this pace, I would suggest playing related companies or exchange-traded funds (ETFs).

An interesting ETF to look at is the Global X China Consumer ETF (CHIQ), which correlates with the Solactive China Consumer Index. The fund has assets of $174 million and a management expense ratio of 0.65%.