Tuesday, March 20, 2012

China's New Long March

Shop-Till-You-Drop Month

The National People's Congress and the National People's Political Consultative Conference have just adjourned their annual March gatherings in Beijing. No doubt, much rubber-stamping was done by the elite cadre to try to address key policy issues such as the slowing GDP growth (expected to be below 8% this year) and increasing wealth disparity amongst the broader population.

But some attendees, such as Ou Yangkun - China's chief representative of the World Luxury Association - had grumblings. March is a critically important month for luxury shopping in Beijing because of the opportunity to proffer gifts to the assembled dignitaries; sadly for Mr. Ou, the local Hermes stores were sold out of US$45,000 diamond-studded Starry belt buckles. He had to suffer the indignity of joining a waiting list. "The buckle is an ideal gift for people who hope to keep a low-profile because it's not easy to see under one's suit," he explained, pouting. Hopefully, he had more luck sourcing solid-gold eyeglasses from Germany's Lotos, which sell for a more modest US$32,000. These are apparently also a must-have item for any self-respecting Chinese leader. Presumably, it's more difficult to discreetly hide blingy, uber-luxurious eyewear than belts, but that point seems to be lost on Beijingers intent on impressing Communist party bosses. Perhaps glittering clothing accessories and spectacles are not easily noticed in backrooms that are dimly lit with shady dealings.

Though March is drawing to a close, China's retailers and the international luxury brand owners need not fret. April will bring "Consumer Promotion Month", starting from the Ching Ming festival on April 4 and running through Labor Day on May 1. This promotion is a new thing being pushed by the Ministry of Commerce as a way of rebalancing economic activity away from reliance on export-driven industries (which have been slowed by uncertain markets overseas). In effect, what the Party leaders are saying is "stop saving - open up your wallets and spend, spend, spend." Shopping malls, restaurants and hotels will be offering discounts. Banks are being encouraged to extend more personal, consumption-oriented loans, rather than just mortgages.

The economic theory that growing countries should try to balance domestic consumption with export-oriented industries is well established. A vibrant local demand-driven economy protects a country from external shocks and makes it more self-reliant and in control of its own destiny. And, god knows, well-heeled Chinese should be discouraged from planning overseas trips that are little more than shopping bonanzas in locations such as Hong Kong, Paris, Milan and London. China has recently developed a trade deficit, and while much of it is due to the import costs of fuel, having hordes of Chinese tourists spending on average US$1,000 per trip on luxury items is not helping the situation.

However, concerns abound at Beijing's "shop-til-you-drop" cheerleading.

First of all, there is the issue of China's yawning wealth disparity. With a lot of wealth concentrated at the top (the country's Gini Coefficient is 42, and its top 10% earnings are 21.6x the bottom 10% - both figures the highest in Asia and higher than developed countries), it's not clear that asking rich Chinese to open up their wallets will achieve much good for the larger populace. Rather, they may be prone to continue buying more foreign luxury goods overseas or at one of the spanking new outlet stores in China owned by foreigners. Such conspicuous consumption does not help re-distribute wealth or keep much money flowing domestically.

Secondly, there is a concern about the deflating property bubble. With so much speculative wealth wrapped up in the huge local real estate market, encouraging consumerism at a time when people's net worth may be due for a tumble doesn't sound like prudent fiscal advise. If one’s house is on fire, one probably isn’t much in the mood to go jewelry shopping.

Thirdly, it strikes me that Chinese citizens don't need further encouragement to be even more status-conscious than they already are. Status has long been deeply embedded in Chinese (e.g. confucian) social structure, and showing off to your neighbors has become a national pastime. Stoking competitive consumerism as national policy is a recipe for breeding social discontent, something that the PRC government no doubt wants to avoid. It is sometimes easy to forget that the ruling party has the word "Communist" in its name. Interestingly, the difference between "communism" and "consumerism" is only four letters (m,s,e,r); these days, one would be forgiven for confusing the two in China.

In conclusion, I believe that consumer spending should be a consequence of good wealth distribution policy, not one that drives it. Unduly pushing spending in other countries (as examples, Korea leading up to the credit-card crisis in 2003 and the US leading up to the fiasco of 2008), invariably ends in debt-choked tears. In China, social safety nets, high quality education, decent health care, and good infrastructure are all investments that badly need further attention. If those concerns can be addressed to a wider base of citizens, more wallets will naturally open. With security comes confidence. It's simple human nature - much more so than lusting after diamond-studded accessories that do little else besides keep one's pants up or correct myopia.

Details Here

No comments:

Post a Comment