Domestic consumers provide spending boost for economy

While having morning coffee at a Starbucks within a department store near my apartment in northeast Beijing, it was impossible to ignore the retail activity all around me.

Shoppers were buying anything from cosmetics and high-value handbags to watches and jewelry as well as indulging in beauty treatments.

That everyone had to show a health-kit app on their phone just to enter, as well as have their temperature monitored and displayed on a huge screen, was not proving a deterrent.

I contrasted this in my own mind with the pictures of a deserted central London I had seen on television earlier in the day.

As China has gradually opened up again amid the global pandemic, retail sales have steadily recovered. They were only 1.8 percent down year-on-year in June, according to the latest National Bureau of Statistics data.

Over the last couple of weeks, I have been researching an article on how the Chinese economy could be the key to the global economy recovering from the pandemic. And the domestic consumer has been central to most of the discussions I have had with economists and other experts.

Chinese middle-class consumers, already famous around the world for their desire for travel and penchant for luxury goods, are likely to number 600 million by the middle of the decade.

Total Chinese consumption is set to increase by $6 trillion from now until 2030, more than the increase in the United States and Western Europe combined, according to a report by McKinsey and Co, the management consultants. The consumption increase will also be double that in India and ASEAN countries combined.

China's ability to restart its economy while keeping coronavirus under control in contrast to the handling of the crisis in some Western countries might also exacerbate these differences.

China, therefore, will continue to be a huge opportunity, not just for Chinese companies wanting to sell their goods and services, but also to foreign multinationals, particularly those facing less favorable economic conditions in their home markets. The Chinese economy actually expanded 3.2 percent in the second quarter, while that of the US contracted by a record 32.9 percent, its worst ever performance.

The government is further opening up the Chinese market by allowing foreign entrants into new sectors and also by relaxing limits on foreign ownership of companies. China has never been more open in recent times.

Koh King Kee, president of the Centre for New Inclusive Asia, a Kuala Lumpur-based think tank, pointed out to me that the vast domestic market also meant that Chinese companies no longer needed to rely only on the international economy to develop their businesses.

"This domestic market will provide a spur to its economic growth. China has only to make a strategic shift inwards to mitigate the negative impact of the (current international economic) crisis and maintain its economic growth trajectory," he said.

Consumption was already a key driver of the economy before the pandemic making up 76 percent of economic growth and there is unlikely to be any let up.

Andrew Sheng, the former central banker and regulator and now distinguished fellow at the Asia Global Institute at the University of Hong Kong, said China has reached the so-called "Ford moment".

Henry Ford, founder of the Ford Motor Company, doubled the wages of his production workers in 1914 because he realized they were the natural consumers of the cars his factories were making.

"If you pay your people better, they will buy your own product. Domestic consumption will be the key driver of growth for China," he told me.

Incomes have, of course, been rising steadily and by the end of this year, China is on target to become a "moderately prosperous society" in time for the 100th anniversary of the founding of the Communist Party of China next year.

This relative prosperity is not only essential to lift China's economy out of its pandemic slowdown but is also vital for the country's further transitioning and the achievement of future important national goals.

The lockdown measures in China might have put a brake on some spending (although online purchases of almost everything soared) but the Chinese consumer is now firmly back, as I witnessed myself over my coffee break.

Whatever their politicians may blather, it is also not something that is lost in the boardrooms of any foreign multinational anywhere in the world and particularly now as never before.

Contact the writer at andrewmoody@chinadaily.com.cn