Boston, MA -- (SBWIRE) -- 02/17/2014 -- China's expanding and increasingly affluent population will result in a strong rise in household spending across all retail subsectors over the next few years, leading to vigorous expansion of the overall retail sector. We are particularly positive about the future growth prospects for communications spending; however, we expect the highest proportion of the household budget to be spent on food and drink throughout our forecast period.

The new China retail report provides an extensive and comprehensive forecast of various retail indicators including household spending and headline total spending across each retail subsector, household income and employment forecasts, demographic forecasts and a detailed breakdown of household and per capita spending across a large number of retail areas including food and drink, clothing and footwear, household goods and a number of other subsectors.

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A sizeable multinational retail presence, which developed following the lifting of FDI restrictions in 2001, ensured the early adoption of modern retail best practices in China, with organised retail - Western-style chain outlets, department stores, supermarkets etc, - already accounting for an estimated 22.5% of the total retail market, far higher than India's 5%.

Although the Chinese retail market remains highly fragmented - with small, independent retailers throughout the countryside serving a population of more than 1bn people - malls and department stores are now the preferred shopping venues for many consumers. In addition, as major cities have slowly begun to saturate, retailers are expanding into tertiary towns and cities or rural areas, looking to guarantee future growth prospects.

We see long-term potential in the Chinese consumer market, particularly for non-essential items and aspirational purchasing by a growing, affluent middle class. We forecast the average net household income will be US$14,601 in 2014, with the majority (76.0%) of households falling into the bottom wage bracket of US$5,000+. However, by 2018, 64.8% of households fall into the US$10,000+ income bracket, which represents the key demographic for increased household spending on luxury items beyond necessities such as food, utilities and transport. We expect this number to grow, resulting in a corresponding increase in household spending on clothing & footwear and high-end household appliances. Meanwhile, transport expenditure will also continue to rise as a larger number of households purchase cars and bikes and travel longer distances, including the purchase of holiday flights.

However, we caution that the inevitable bursting of the ongoing credit bubble could serve to undermine the profitability of consumer-focused industries. We are revising up our GDP growth forecast for 2013 to 7.6% from 7.5% previously, while maintaining our downbeat forecast for 2014 of 6.7%.

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