[SCMP Column] China's consumers

November 10, 2018

As most Americans – and many others worldwide – wallowed in Mid-term introspection this week, China began its Long March to win over the hearts and minds of the world’s traders, to put some substance behind two years of mainly-rhetorical commitment to globalisation and Mainland market liberalisation.

There was a certain elegant symmetry in starting the week with the massively-hyped Shanghai Import Expo, with tens of thousands of Mainland buyers coming in from across the country to buy imported goods, and finishing the week with Alibaba’s “Singles Day” orgy of domestic consumer spending.

At a time of deepening trade war with the US, the timing is impeccable to remind the world of the importance of China’s increasingly affluent consumer market and of the policy-shift away from export-reliance and towards a heavier reliance on China’s domestic consumer market.

From the Shanghai Import Expo, Xi Jinping moves to win friends at the ASEAN Leaders’ summit in Singapore (where there are still faint hopes that the grouping can finalise negotiations on the long-nurtured Regional Comprehensive Economic Partnership (RCEP)), and then on to Port Moresby for the APEC Leaders’ get-together – and a second opportunity in three weeks to talk trade liberalisation with Japan’s Shinzo Abe and the other members of the freshly-ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

No effort is being spared to reinforce China’s message that it stands full square behind liberalising its economy, opening it further to international competition, and using multilateral and plurilateral deals to do it. As Donald Trump waits for his dinner date with President Xi at the Buenos Aires G20 at the end of the month, the US preference for bilateral deal-making is being pushed firmly snubbed, despite hints from Trump to the contrary.

While Beijing may have drawn comfort from the Democratic Party’s recovery of control of the US House of Representatives, and the possibility that it might trigger a review of the style and strategy of the Trump administration, on the trade front there was little in the election result to provide comfort. Democrats are by tradition fiercely sceptical about the merits of trade and globalisation, and Trump remains confident that his tough positioning on trade (with China in particular) continues to rally support.

If China is to rebuff the trade war engaged by Trump and his team, then it is by now clear that the battle will be a long one, and must involve China being immensely more successful in winning over other significant trading partners to trust the market-opening rhetoric that Xi has maintained over the past two years – from Davos in January last year, through the Boao Forum in Hainan last April, and now to the Shanghai Expo.

Most of China’s trading partners remain sceptical and complain there is little substance yet underpinning Xi’s liberalising mood music. Xi promised US$30tr of goods imports and US$10tr of services imports in the coming 15 years, but economists correctly noted that this does little more than maintain current trade trends. Pledges to open up the health care sector, financial services, telecoms and mining, and to remove foreign ownership caps in areas like health care and education, provided some encouragement, but China’s leaders still have much work to do to build trust.

However, what the Shanghai Expo has successfully done is remind the world of the rising importance of China’s consumer economy. China’s household consumer market has grown ten-fold from 2000, from RMB3.3tr to RMB36.6tr in 2017. Further growth of RMB1.8tr is predicted by 2020 – which the Boston Consulting Group points out is equivalent to the entire German consumer market, and over a quarter of total consumer demand growth worldwide.

Nationwide, China’s disposable income per capita has risen to RMB36,000 a year – compared with RMB7,000 in 2000 – and the consuming power of the growing Mainland upper-middle class is becoming noticeable. According to China’s National Bureau of Statistics, over 90 per cent of Chinese families today own a washing machine, a refrigerator and a water heater, and it reports 120+ per cent ownership of colour TVs and air conditioners. Mobile phone ownership stands at 231 per cent – which means the average Chinese person owns between two and three phones.

Spread across a population of more than 1.3bn, this amounts to formidable consuming power – well illustrated by the awesome spending orgy of “Singles Day”. Last year, Alibaba reported a one-day shopping spree worth US$25bn – almost ten times more extravagant than the US’s US$3bn “Black Friday” spree around the Thanksgiving weekend. Who knows how much will be sold on Singles Day tomorrow?

Even if China’s spending is mainly concentrated in the nine wealthy eastern coastal provinces, this clearly explains why so many international businesses piled into the Shanghai Expo last week, and why they are so truculent about the slow pace at which China is opening up its domestic market to international competitors.

Away from the Shanghai headlines and Xi Jinping’s promises of intent, the World Bank last week quietly provided endorsement of China’s claim steadily to be opening up. In its annual Ease of Doing Business study – perhaps the world’s most comprehensive and rigorous assessment of the barriers that block access to the world’s markets – it reported that China now ranks 46th out of 190 economies worldwide.

That is in its own right it not an impressive ranking. It reflects the still formidable barriers to entry to its market. But it compares with a ranking of 78th in 2016, and reflects intensive efforts to streamline bureaucracy surrounding setting up a business. Even its byzantine tax system has seen improvement – up from 130th place to 114th.

Here at last is measurement of substantive progress. Still too slow, perhaps, but substantive.

Such progress is far from persuading Donald Trump to pull off his attack dogs. Many reforms are needed even before more balanced and moderate critics over access to China’s huge market. But as Xi Jinping makes his way through this autumn’s diplomatic round, there is a sense that progress is being made in demonstrating that China is beginning to put its money where its mouth is. It needs to succeed. The vitality of our liberal, multilateral trading system may depend on it.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view. Opinions expressed are entirely his own.

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