Figure 8: China has overtaken the United States and the European Union to become the world’s largest investor in infrastructure Amount spent on infrastructure, 1992-2011 – Weighted average % of GDP
$503
Weighted average spend applied to 2010 GDP ($ billions) Road Rail Ports Airports Power Water Telecom
Middle East and Africa† 3.6
China 8.5 Japan 5.0
India Other 4.7 industrialized# 3.9
Eastern Europe/ Eurasia 3.3
$403
$374
E.U. 2.6
U.S. 2.6
Latin America 1.8
0 20 40 60 80 % of world GDP* * Percentage of 2010 world GDP generated by the 86 countries in our analysis # Australia, Canada, Croatia, Iceland, Lichtenstein, New Zealand, Norway, Singapore, South Korea, Switzerland, Taiwan (Chinese Taipei), and the United Arab Emirates † Excludes unusually high port and rail data for Nigeria; including these data brings the total weighted average to 5.7% Source: Global Water Intelligence, International Energy Agency, International Transport Forum, McKinsey Global Institute analysis
A Window of Service-Sector Growth has Opened Up The service sector is expected to account for half of China’s GDP in 2022, up from 44% today, partly driven by the fact that China’s upper middle class becomes increasingly willing to spend money on services such as entertainment, travel, leisure, care services for the elderly, security services and equipment (e.g. burglar alarms and security cameras), education and logistics. All these sub-segments are expected to grow more quickly as a result. Now is the time for global companies to consider creating a footprint or increasing their existing presence in these segments. We are already beginning to see a rising trend in the consumption of services. In 2011, 41% of upper middle-class consumers spent, on average, around RMB70 more per month on dining out, for instance, than they did the previous year. This compares with only 15% of U.S. upper middle-class consumers who have increased their spending on dining out year-onyear. The same pattern appears in the case of travel. In 2012, 27% of China’s upper middle-class consumers spent more than in the previous year on travel, compared with 22% of the lower middle class and 25% of the upper middle class in the U.S. Also in 2012, China’s upper middle class ac-
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counted for 18% of discretionary consumption – such as education, leisure, recreation, healthcare and financial services – which represented 35% of their annual household consumption. In 2022, the upper middle class is expected to account for 52% of discretionary consumption – that is, 42% of their annual consumption. In the case of education, 37% of China’s upper middle class spent an average of 25% more in 2011 than in 2010. On healthcare, 68% of the upper middle class has purchased or used healthcare services or products, 7% higher than the average in the urban population as a whole. Financial services are likely to see rising consumption, reflecting the fact that household financial assets are growing at an annual rate of around 20%. We expect such assets to rise from US$2.6tr in 2011 to US$17tr in 2022. In the case of insurance, the urban middle class may contribute to about 50% of insurers’ gross premiums in 2022.
Huge Infrastructure Capacity Needs are Another Business Opportunity Beyond consumer goods and services, we see huge opportunities in all aspects of urban infrastructure. Today, the challenges facing urban China are shifting. Cities can no longer rely on abundant land and