FROM WORLD FACTORY, CHINA’S MARKETS MOVE TO BECOMING ‘CONSUMER SOCIETY’

On December 13, the meeting of the Politburo of the Communist Party of China’s Central Committee first proposed the policy guidance of “promoting the formation of a strong domestic market” when analyzing the current economic situation in China and deploying future economic work. At a time when Chinese economy is facing drastic changes in the external environment, it is of great significance for China’s future economic and social development to take the domestic market as one of the priorities of macroeconomic policies.

In the process of globalization, China’s role in economic globalization has changed from the “world factory” to “Chinese market”. This change did not happen suddenly, but went through a gradual development process. After the reform and opening up, China initially took part in globalization with its comparative advantage of cheap manufacturing. Marked by its accession to the WTO in 2001, China has rapidly developed as the “world factory”, and provides products “Made in China” to the world. Since then, with the increase of various costs in China and the gradual weakening of demographic dividend, the cost of “Made in China” has been rising continuously, leading to the relocation of some cost-sensitive manufacturing industries. The structure and content of China as the “world factory” is gradually changing.

In this process, there were two changes have taken place in the Chinese market: first is the upgrading of the “world factory”, that is, by improving technology and technological innovation to improve the level of manufacturing industry, so as to increase the added value of products and make “Made in China” continuously climb up the value chain. This process is also the development path that Anbound was identified in November 2012 in which China is bound to move from “world factory 1.0” to 2.0, 3.0 and 4.0. Second, China’s consumer market has begun to expand; with the accumulation of China’s national wealth and the gradually increases of domestic consumption capacity, it shows a great potential of the “Chinese market”. In August 2011, Anbound’s research team noted that the “Chinese market” factor was continuously driving multinational companies to adjust their strategies. Hence, China should first get its own affairs in order and develop the “Chinese market”. In 2012, our analysis of Chinese product safety issues reiterated the changes that are taking place in China – from provide “Made in China” in the past to provide “Chinese market” in the future.

To measure the potential and scale of the “Chinese market”, we can look at China’s consumption capacity in a narrow sense. In 2001, China’s annual GDP and the total retail sales of consumer goods were RMB 9.5933 trillion and RMB 3.7595 trillion respectively; In 2010, the figures were changed to RMB 39.7983 trillion (4.15 times that of 2001) and RMB 15.6998 trillion (4.18 times that of 2001) respectively; In 2017, the figures were RMB 82.7122 trillion (8.62 times that of 2001) and RMB 36.6262 trillion (9.74 times that of 2001) respectively. Judging from this incomplete consumption index of total retail sales of consumer goods (which does not fully reflect the consumption of services), the expansion rate of “Chinese market” is faster than that of GDP in the same period, indicating that the structure of China’s economy is changing.

As a matter of fact, the “Chinese market” can also be measured by the scale of China’s huge imports and the capacity of Chinese people to consume overseas. In 2017, China has RMB 27.7923 trillion in total goods traded, of which RMB 15.3321 trillion was exported and RMB 12.4602 trillion was imported. On the other hand, the trade in services totaled RMB 4.6991 trillion in 2017, of which RMB 1.5407 trillion was the services exported, RMB 3.1584 trillion was services imported, and the services trade deficit was RMB 1.6177 trillion. In recent years, the scale of Chinese people’s consumption in overseas has reached more than USD $100 billion a year. In fact, at the Boao Forum conference in April 2013, President Xi Jinping has expressed a similar idea in diplomatic language — “The more China develops, the more development opportunities it will bring to Asia and the world”. President Xi Jinping has laid out a big economic “cake” for the world — in the next five years, China will import about USD $10 trillion worth of goods, its scale of foreign direct investment will reach USD $500 billion and the number of outbound tourism will exceed 400 million. These figures, which have attracted foreign governments and investors, shows a huge “Chinese market” demand.

In the long-term of follow-up study, as an independent think tank, Anbound has repeatedly stressed that China should attach importance to and make good use of its strategic chip of “Chinese market” in its policy. It should be pointed out that paying attention to the “Chinese market” is related to an important change in the world economic development — the emergence of the “buyer’s world” (“Chinese market of buyer’s world “, Chen Gong, Daily Economy, August 25, 2014, Vol. 4742). Chen Gong, the Chief Researcher in Anbound, had analyzed the change and stated that the global industrial transfer and the resource allocation will become the norm follow by the deepening of economic globalization. Many emerging market countries will join in, become the rising stars, seeking to introduce capital, develop manufacturing industry and export their products. Therefore, China will become a good example of wealth creation in globalization, and different parts of the world will strive to become the “world factory”. At that point of time, China will become a real “buyer’s world”. In the “buyer’s world”, whoever has market space will own the new competitiveness and development chips.

The extreme will bring about the opposite. The new unfairness caused by economic globalization has aroused opposition and evolved into a phenomenon of anti-globalization. But even when the tide of anti-globalization and anti-free trade is surging, the law of competition in market space also plays its role. As Chen Gong has analyzed in his “Battle of Market, Space and Global Markets”, the essence of anti-globalization wave is actually the competition for the “market space”. Whoever has the dominant power and influence over the market space has the core competitiveness in the world economy. In this sense, to cultivate and develop the “Chinese market” is actually to strengthen China’s competitiveness in the world economic arena.

Probably, there were only few people think about: what does the “Chinese market of buyer’s world” mean? According to Anbound’s researchers, it means that China will enter a “consumer society”, which is a new era of feature that China cannot and will not ignore in the future. For a long time, China has been used to be the “world factory” and the rapid urbanization, so that the Chinese society has become the “investment society”, “production society” and “urbanized society”. Governments at all levels are good at attracting investment, investing in projects, demolition and relocation of industrial parks; banks and capital markets are familiar with investment, production and construction projects; enterprises are also good at investment and construction of economic entities.

But the advent of a consumer society means that all of these have to be changed. The focus of the society and the market should shift from the familiar investors, financial institutions and approval authorities to consumers and pay attention to their needs and feelings. In terms of urbanization, China should focus on livable and attractive cities instead of land indexes, urban expansion and land transfer fees. On the enterprise side, we should focus on the service demand and business environment of enterprises instead of the investment scale, production cycle and revenue scale of enterprises. In terms of government services, it is necessary to shift from the large-scale of demolition and construction to the meticulous improvement of public service quality. In terms of market regulation and law, we need to shift from simple and extensive licensing, examination and approval, prohibitions and restrictions to safeguarding the interests of consumers and improving the efficiency of regulation in a scientific way…In a word, the development mode of consumer society and productive society is very different, and both the government and the market need to adapt to this change of consumer society.

Final analysis conclusion:

From the “world factory” to the “Chinese market”; from the production society to the consumer society, this is the development process that China has gone through in the past few decades, and it also indicates the direction of China’s social and economic development and reform in the future. We believe that this process of evolution is an inevitable path for the Chinese economic and social development. By understanding and grasping the rules, we will be able to grasp the direction of future policies in a more scientific way.

ANBOUND RESEARCH CENTER (MALAYSIA) SDN BHD

– MEDIA STATEMENT

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