Government reforms aimed implicitly at moderating savings and lifting household wealth will also play a role.
For Australia, such surging demand for services from the rapidly growing middle class should double the value of exports to China to $US175 billion over the same period. Australian companies, particularly service providers in the tourism, education, financial services and healthcare sectors, as well as food and agricultural businesses, should see a major boon from the impact of China's shift from an investment to a consumption-driven economy.
But global financial stability will also be enhanced by the rise of the Chinese consumer and new opportunities should emerge for retailers around the world.
CHANGE IS UNDERWAY
There is already a revolution underway in modern Chinese consumer spending habits. Last year, private consumption in China reached $US3.8 trillion, the equivalent of Germany's GDP. China is already the world's largest market for luxury car makers such as BMW and sales of luxury items such as watches are also booming.
Spending by Chinese tourists hit a record $US165 billion last year, an increase of almost 30 per cent from the previous year, showing the consumption revolution is already being felt around the world.
The truly remarkable thing is the potential for this to keep growing. As a share of GDP, at 38 per cent, China's consumption remains small by developed world standards. Even middle-income countries at equivalent stages of development to China have on average consumption ratios almost 20 percentage points higher. This represents an enormous opportunity.
In particular, the Australian tourism and education sectors can expect strong growth as more Chinese people travel for leisure and study. Changes are already being felt with Chinese tourists spending $US6.7 billion in Australia last year (up 32 per cent from the year before), making China Australia's number one tourism market.
However, the changes present as many challenges as they do opportunities for Australia. China's move away from investment-led growth (especially infrastructure construction) means reduced demand for commodities.
While Australia's commodities will still be needed for China's growing housing, car and energy markets, Australia will need to adapt to take full advantage of the emerging opportunities in the services sector.
China's consumption will have to climb steeply from its current position to avoid economic instability. The country's economy has been growing at roughly 10 per cent per annum since 1990 but the composition has been heavily skewed towards investment – especially in manufacturing, real estate and infrastructure.
China's savings rate and its rate of investment have been unsustainably high throughout the 21st century. If this imbalance is not addressed the Chinese economy will be vulnerable. Increased spending by Chinese households will be fundamental to the future stability and growth of the Chinese economy.
Chinese authorities have recognised this by initiating a range of policies aimed at reducing excess savings, increasing household wealth and improving financial infrastructure. Ongoing pension reform and a planned deepening of existing medical insurance schemes should also help to lower precautionary savings in China and release funds for consumption.
Perhaps most importantly however, China is modernising its financial system. Regulation of the core banking system is being gradually relaxed while new financial services firms are emerging. This will improve the household sector's access to credit and financial management products.
THE GLOBAL OUTLOOK
Increased consumption in China will have significant benefits for the world. China's sheer scale means that its excess savings are causing distortions in the global economy. The US economy has absorbed much of China's excess savings, contributing to a large current account deficit in the US.
If China continues to expand at a faster rate than the global economy it will become harder for foreign demand to continue absorbing China's excess savings. In particular, some countries running current account deficits are seeing their net financial liabilities grow to the point where further deterioration could jeopardise global financial stability. The global economy as a whole will benefit from the change in China's growth model.
Consumption patterns in Taiwan and Hong Kong offer us some clues as to where the new opportunities will emerge. As Taiwan's economy matured last century, its spending patterns shifted away from food and other basic necessities in favour of household items and services.
Overall spending in China is expected to move in a similar direction over the next 15 years and affluent consumers in cities like Shanghai will likely adopt Hong Kong's pattern of higher expenditure on electronics, jewellery, cars, education, medical services, and packaged tours.
As a result of emerging opportunities like these, we project that Australia's exports to China will almost double by 2030 but the shorter-term transition could be bumpy. The historic strength of Australia's economy is at risk if Australia doesn't adapt quickly to the next chapter of the 'China Story' - the sleeping giant has awoken, and global consumption will never be the same again.