One of the common themes heard amongst those investing in emerging market equities is the focus on consumer spending growth.  Consumer spending growth tends to be fueled by a decrease in savings and an expansion of household credit.  One of the data points CB desired to observe for many of the emerging market economies was household debt levels.  McKinsey recently released a report on Debt and Deleveraging, which also provides household debt levels for a few of the emerging markets (all the debt figures below are from the above mentioned McKinsey report).  The figures listed below are for 2008 and the methods of calculating the household debt levels tends to be concealed from the public.  CB ran a check on the China and India debt figures and was in the ballpark of the below numbers.

(1) China’s household debt level has grown from 4% of GDP in 2000 and has since increased to 12% of GDP in 2008.  One should note that the majority of the household debt is in the form of mortgages.   Currently, China’s credit card market is still in its infancy and has much potential growth. In 2000, China’s household consumption expenditures accounted for 49.3% of GDP and gross capital formation accounted for  35.1% of GDP.  In 2007, China’s household consumption expenditures accounted for 37.4% of GDP and gross capital formation accounted for 44.7% of GDP. These prior numbers are ballpark figures since there are some inconsistencies in the Chinese figures that have not been fully understood by CB during the time allotted to this matter.  Obtaining a deeper understanding of China’s numbers will be focused on when CB embarks upon future China research.  Nevertheless, all the data not related to debt was obtained from the National Bureau of Statistics of China.

(2) India’s household debt level has grown from 2% of GDP in 2000 and has since increased to 10% of GDP in 2008.

(3) Russia’s household debt level has grown from 1% of GDP in 2000 and has since increased to 10% of GDP in 2008.

(4) Brazil’s household debt level has grown from 6% of GDP in 2000 and has since increased to 13% of GDP in 2008.

These household debt levels pale in comparison to the U.S., which reported household debt as 72% of GDP in 2000 and 97% of GDP in 2008.  There is still much room for growth for the consumer in the BRIC countries; however, the infrastructure and the credit environment have to be in place to allow such growth to occur.  Furthermore, on January 13th, CB provided a summary of the Federal Reserve Bank of San Francisco’s Economic Letter, which detailed a relationship, in the U.S., between household leverage and consumption.  The report concluded that as household leverage decreased so did consumption.  Nevertheless, in the Economic Letter, household leverage was measured as household debt to personal income, which is different from the above methods.  Yet, the relationship is interesting.

Yes, this post is heavily monopolized by China.  CB has interest in continuing research on all the BRIC countries and other emerging markets.  As more research and data is obtained, it will be posted.

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