June 16, 2024

Economix: The Impact of China’s Consumers

Book Chat
Hill Wang

In “As China Goes, So Goes the World: How Chinese Consumers Are Transforming Everything,” Karl Gerth outlines China’s growing consumption patterns but then adds an ominous note. He writes, “Nobody fully understands just what they might be sowing, for the Chinese or for the rest of the globe, by continuing to insist that the Chinese consume more and more.”

Mr. Gerth, who teaches modern Chinese history at Oxford University, does not have clear answers to the questions he poses. But his book insists Chinese leaders are rapidly tearing down barriers that have restricted average citizens from consuming more. He explains the trends that have now made China the world’s largest car market, but also how China is still a center of counterfeiting. Professor Gerth agreed to answer questions about his book, which is published by Hill Wang, a division of Farrar, Straus Giroux.

Q. Professor Gerth, for the past several years there have been indications that while consumption is growing in China it has not kept pace with the nation’s economic growth. Is China really shifting toward becoming a more consumer-oriented society? What evidence do you see?

Mr. Gerth: Undoubtedly.  Take advertising alone, which is a defining feature of living in a consumer-oriented society.  The political slogans of the Mao era have been largely replaced over the past few decades with advertisements.  Now advertisements are ubiquitous.  I’ve even encountered LCDs blasting me with ads in toilet stalls, cabs and elevators.

As with so much in China, the transformation has been both dramatic and rapid.  China’s ad market has grown by 40 percent a year over the last two decades; some reports expect China to replace the United States as the world’s largest ad market as soon as 2020.  Nearly all Chinese, rich and poor, have access to TVs and the advertising that comes with it.  So even the poor are aware of all the new products and services spreading in China.

Brands are a second important piece of evidence of a shift toward consumerism.  They are a key way consumers communicate identity to others.  Not long ago, China had few national brands and access to international brands, even Coke or McDonald’s, was rare.  Now these brands are commonplace and China and MNCs [multinational corporations] are quickly creating nationwide brands across product and service categories, a process of creating not only integrated national markets but also unified consumer consciousness through brands.

So, yes, consumer culture permeates media and brands, and chain stores have begun to standardize consumer experiences and expectations, and for tens of millions of Chinese, especially younger urbanites, brands define their identities.

Karl Gerth, author of Karl Gerth, author of “As China Goes, So Goes the World.”

Q. China is going through a spectacular economic boom. But the government is increasingly worried about rising inequality and whether the nation can develop a broad middle class. How do you see it?

Mr. Gerth: Clearly, hundreds of millions of Chinese are still desperately poor. But hundred of millions have begun to adopt all or some aspects of middle-class lifestyles — from bigger homes stocked with the latest electronic appliances to private cars to modest vacations.  These Chinese have begun to lead consumer lifestyles similar to their counterparts in other countries.

The question remains, though, whether China can create a middle class as broad as the United States did after World War II.  Or will China continue to create a two-tier society: an elite with resources to consume unlimited luxury goods and vast majority living on much less?  Of course, this isn’t just a question for China but many countries, including the United States, where all statistics indicate the country, ironically, is heading in the opposite direction from the one global business and political leaders want to see in China, away from having a broad middle class.

Regardless of the exact size of the developing middle classes in China, even the current size of the consuming classes is having significant impacts.  Sooner rather than later, global products and brands will be shaped by Chinese consumer tastes.

Q. What are the implications of a consumption boom in China?

Mr. Gerth: The implications of Chinese consumerism are wide-ranging, interconnected, and include both the positive and the ominous.  Take cars.  Fifteen years ago few Chinese owned cars.  But in 2009, China surpassed the United States as the world’s largest car market and grew another 40 percent in 2010.  This is good news for multinationals like G.M., which now sells more cars in China than in the United States. Anyone invested in stock markets may already be benefiting from Chinese consumerism.  And in the coming years, China may do for cars what it has done for so many other products one finds in Wal-Mart: drop the prices and increase the variety.  They are clearly aiming to lead the way with electric cars.

But there are many other unfortunate implications.  Even with the continual addition of new and wider roads, cities like Beijing cannot confiscate land, demolish residential buildings, and build roads fast enough to accommodate all these new cars.  Witness the 100-kilometer-long traffic jam outside of Beijing, which made international news but hardly surprised anyone there.  Worse than traffic jams, these roads are gobbling up China’s valuable agricultural land.  And cars aren’t fueled by loving kindness.  China lost its energy independence in the 1990s and now, as with the many Western countries, its need for imported oil forces its government into international relationships with unsavory leaders in countries like Sudan.

Q. Which global brands are benefiting the most from China’s consumption growth now?

Mr. Gerth: Luxury brands and cars are the most obvious beneficiaries and will continue to be so.  But consumer spending has nearly quadrupled since 2000.  And global brands in products and services are investing heavily.  Look at G.M., Tesco, Apple and all the other multinationals banking on Chinese consumer spending.  Starbucks alone has just announced plans to triple its number of stores in China to 1,500 by 2015.  Five years ago, when I began to research my latest book, I started a list of No. 1’s for the Chinese consumer: largest consumer of mobile phones, beer, beef, etc.  But, of course, this doesn’t mean Chinese will pay any price and buy into any brand and the lifestyles promised, as the demise of the Barbie superstore in Shanghai confirms.

Q. Why haven’t we seen the emergence of major Chinese brands — or have we?

Mr. Gerth: It’s still early; Sony wasn’t built in a day.

I have a longstanding interest in the persistence of economic nationalism in China and I have no doubt that China will do whatever it takes to create internationally competitive brands.  The Chinese state views creating internationally competitive brands to be a matter of utmost importance in their strategy of moving up and away from labor- and energy-intensive manufacturing and toward a higher value-added service economy. The creation and spread of such brands is one reason I claim in the subtitle of my book that Chinese consumerism will change “everything.”  Everything ranges from the biosphere to the consciousness of global consumers, which is comprised of brands.

What they cannot build, they will buy, as they have begun to do with Volvo and many other established brands, including regional ones.  For instance, recently Li Ning, China’s top domestic sports brand, entered into an alliance with Lotto Sport Italia, and Peace Mark, Asia’s biggest watch retailer, bought Swiss watch brand Milus.  These are modest cases.  I think everyone is waiting to see what the giant state-owned enterprises do.  After all, the top 20 companies in China in terms of revenue are state-owned (including such companies as Sinopec, China Mobile, China First Automobile, and the Internet provider Netcom).  All are sitting on large capital reserves.  It’ll be interesting to see how they decide to build and buy global brands. Indigenous or acquired Chinese brands are only a matter of time.

Q. You say the global economy will be reconfigured in a major way because of the rise of the Chinese consumer.  Can you give some examples or describe the kinds of changes we’re likely to see in 2030?

Mr. Gerth: There will be many positives, especially from the point of view of consumers. Chinese brand building could lead to the creation of dozens of new Sonys and Googles. They also lead to cheaper prices for things intended for both the China and foreign markets.  Indeed, China may continue to shift its manufacturing prowess and aid the transition away from nonrenewable energy sources and the consumer goods like gas-driven cars that rely on them, leading the way to the post-carbon economy and society even as it continues to emit the most carbon.

While the potential benefits are nice to contemplate, I think the downsides also require attention.  Chinese markets may become more like Western ones.  But the reverse is also true.  Rather than China increasingly protecting the intellectual property like the brand integrity of multinationals, perhaps counterfeits manufactured in China and exported globally will undermine global brands and consumerism itself. This is happening. Even as retailing and branding have been encouraging much more consumption in China, consumer confidence (both nationally and internationally) has been undermined by the massive production of Chinese counterfeits.

Protecting and creating brand identities is critical to modern consumer culture.  If consumers regularly got sick after drinking Evian water, an imported premium brand in China, few would continue to buy that brand. If there were frequent stories of brakes malfunctioning on $80,000 BMW sports cars, nobody would want one.

China may not simply embrace and extend consumerism as it has developed in the West and Japan but fundamentally alter and even challenge it.

Article source: http://feeds.nytimes.com/click.phdo?i=8bda40943e2e054afbe5043a46cc4747

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