Who said Chinese have to spend more?

One of the most common tenets of the pundit class is that emerging countries consume less than developed nations do - and that global rebalancing involves getting emerging consumers to spend more and advanced consumers to spend less.

Is this actually true? Our answer is "a bit, perhaps - but not nearly to the same degree as most investors would imagine".

As it turns out, there is no structural difference whatsoever in private consumption/GDP shares between emerging and developed markets. Moreover, the more recent drop in the emerging consumption/GDP ratio has less to do with consumption and more to do with the (temporary) inflation of other parts of GDP - that is, even on a cyclical basis it's unlikely that higher consumption spending in emerging economies will play any significant role in global rebalancing.