Economic Watch: 40 years on, the rising power of Chinese consumers

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[GRAPHICS]CHINA-ECONOMY-CPI

Graphics shows that China’s consumer price index (CPI) rose 1.5 percent year on year in January. (Xinhua/Qu Zhendong)

BEIJING, Feb. 15 — Decades ago, China was basically a self-sufficient country, and the products on its marketplace were largely dull and limited. But the reform and opening up initiated in 1978 has dramatically changed the country’s economic landscape, bringing in a wealth of overseas goods and services, not to mention creating one of the largest drivers of global economic growth — Chinese consumers.

As one of the top markets for automobiles, clothes and video games, China keeps marching forward in a dash to purchase consumer products, services and culture.

BUYING FROM GLOBE

As a tradition, Chinese people usually make special purchases to celebrate Chinese New Year, which falls this Friday, with shopping lists containing anything from beef and nuts to firecrackers and poetic couplets.

Wang Yang’s shopping is not so traditional this year. German beer, French steaks and seafood from Northern Europe were a small fraction of his 500 U.S. dollars of purchases in a mall for imported goods only, at a land port in Zhengzhou, central China’s Henan Province.

“I don’t even have to leave the city to buy all this food. It is fast and convenient. Our family dinner will be made of ingredients from all over the world this year,” Wang said.

More and more exotic foreign delicacies are finding their way to Chinese tables like Wang’s, with fresh farm produce and any number of specialties arriving from thousands of miles away.

From 2011 until now, about 7,000 cargo trains have traveled on 61 lines linking to 36 European cities such as Hamburg and Madrid with 38 Chinese cities, including Xi’an and Yiwu. The number of trains back to China tripled annually over the past four years due to the growing appetite of Chinese consumers who are increasingly “going global.”

The busy China-Europe freight trains mirror the power of China’s many deep-pocketed consumers, who exert their influence through purchases, catering and travelling. As a steady economy has boosted personal incomes, people are willing to spend more on foreign products in pursuit of better quality and experience.

“As the market keeps growing, Chinese consumers need more options, which has created opportunities for many European countries,” said Slawomir Majman, chairman of the World Union of Agricultural Association, citing a 40 percent increase in Greece’s exports to China over the years. Greece, of course, is just one of many countries that has seen such a boost.

Booming e-commerce has fanned a spending boom. Chinese consumers no longer need to take long-distance flights or go to luxury malls to shop, with many choosing to simply make their purchases with a few clicks of a mouse.

China’s e-commerce imports rocketed by 116.4 percent to 56.59 billion yuan (8.76 billion U.S. dollars) last year, outpacing the around 40-percent growth in exports.

“China will make more efforts to cut tariffs on products including cars,” senior Chinese official Liu He said at the World Economic Forum in January. Import taxes on 187 products were slashed last year, with the average rate down from 17.3 percent to 7.7 percent.

ECONOMIC ENGINE

China has the largest middle-class in the world, with a population of 300 million, and it is growing fast, accounting for 30 percent of the world’s total.

The government predicts the group, which has ever stronger and more sophisticated consumers demands, will play a significant role in propping up the economy.

The celebration of Chinese New Year is seeing new modes of spending as more families favor organic food, shop online, dine outside, and entertain themselves.

A recent report said about 6.5 million overseas trips will be made by Chinese during the holiday. Online travel service provider Ctrip said people have booked outbound tours to over 700 cities in 68 countries and regions on its platform, with destinations as far afield as Antarctica.

“The key term for this year’s holiday will be ‘consumption upgrade,’ with higher-quality products and services gaining popularity,” said Wang Bingnan, vice minister of commerce.

Wang Yang said that back in the 1990s his father always took him to farmer’s markets only to buy local meat and chicken ahead of holidays. “But now it is a fashion to shop overseas and shop online,” he said.

“This is a very important trend that will prompt marked changes in the growth pattern and quality of the economy,” said Mao Shengyong, spokesperson of the National Bureau of Statistics (NBS).

A major aspect of such changes is an economy less reliant on investment that analysts believe has become less effective and can easily cause structural imbalances. Consumption is now a key economic driver and contributed 58.8 percent to the domestic gross product growth in 2017, according to the NBS.

Consulting firm McKinsey & Company said in a report that China’s consumer confidence hit its highest in 10 years, partly due to the tech-savvy younger generation born in the age of the Internet.

The power of consumption will likely continue due to improve people’s incomes. Morgan Stanley expects China to gain high-income status as early as 2025.

RURAL POTENTIAL

There is also huge consumption potential in less-prosperous rural areas, which are narrowing the gap with cities, as the country moves to revitalize its rural regions.

In 2017, retail sales of consumer products in rural areas surged 11.8 percent to 5.2 trillion yuan, outpacing the 10 percent rate in urban areas, according to the NBS. Online sales topped 1.24 trillion yuan, up 39.1-percent year on year.

The growth was attributed to policies to boost the incomes of farmers. In 2017, per capita disposable income of rural residents increased 7.3 percent, faster than both urban growth and GDP expansion.

In a key report to the 19th National Congress of the Communist Party of China, the strategy of rural revitalization was proposed as a “historic task” essential for accomplishing China’s modernization goals and building a moderately prosperous society.

E-commerce is helping the process, with more and more of the rural population going online for business and shopping.

“Internet commerce has restructured production and logistics in rural areas, which has also helped farmers raise incomes, particularly in the country’s west,” said Mao Risheng, a researcher with Chinese Academy of Social Sciences.

According to a report by the e-commerce giant Alibaba, there are 2,118 Taobao villages, referring to villages where over 10 percent of households are involved in online selling, with total annual transactions of more than 10 million yuan.

It is expected that the number of Taobao village will hit over 5,500 in 2020, bringing more than 3 million jobs to the countryside.

Retail sales in rural areas will remain robust this year, with a 12 percent growth pace, 1 or 2 percentage points faster than in the cities, according to a report by the China Council for the Promotion of International Trade. Enditem

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