Take the Back Seat: On Chinese Consumerism | The Nation


Take the Back Seat: On Chinese Consumerism

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More than two decades after the collapse of the Berlin Wall was heralded as the triumph of liberal democracy, ordinary Chinese still lack basic political liberties. They can't form rival political organizations to the ruling Communist Party, or meet to discuss doing so. Independent trade unions are banned. Attending church can become risky if the party decides a congregation is an incubator for something sinister. Every so often, the Chinese authorities even outlaw the evangelical-style get-togethers of successful Amway and Avon salespeople out of fear that such enthusiastic meetings will swell into a collective political sentiment. Last year writer and activist Liu Xiaobo, the recent recipient of the Nobel Peace Prize, was sentenced to eleven years in prison for circulating Charter 08, a petition pressing the Communist Party to uphold the country's Constitution.

As China Goes, So Goes the World
How Chinese Consumers Are Transforming Everything.
By Karl Gerth.
Buy this book.

About the Author

Richard McGregor
Richard McGregor is the Washington bureau chief for the Financial Times and the author of The Party: The Secret World...

But there is one thing that the Chinese have had the liberty to do since their economy was first prized open to market forces in the late 1970s: consume. When General Motors was recently studying ways to reinvigorate the Buick sedan, it turned to the company's design team in China. Tired as the iconic American brand might be at home, the Buick sedan has been a top-selling model in China for a decade. With an eye on taking the brand upscale, the designers focused on the swelling market of chauffeur-driven Chinese entrepreneurs, adding extra legroom and power sunshades in the rear and two screens connected to a DVD system for back-seat passengers. The LaCrosse costs up to $49,000 in China, whereas the price of an average sedan is about $7,500. "In China, the owner of a car such as a [Buick] LaCrosse tends to be driven during the week. So he or she wants extra comfort in the back," a GM spokesman in Shanghai told the Financial Times. "So when developing the new LaCrosse—which is sold in the US and China—we paid special attention to the back seat. Customers in the US will benefit from this." (The new features were incorporated into the US model released this year.)

As Karl Gerth chronicles in As China Goes, So Goes the World, when a country of 1.3 billion people suddenly decides to join the line at the global supermarket, its citizens' decisions flow like a torrent through markets ranging from cars to sneakers, clothes, generators and cement. When the same people decide at the same time to make just about everything in the supermarket, for a tenth of the price, and to sell the products to whoever wants to buy them, the impact becomes even more dramatic. If the disparate peculiarities of Chinese economic reform and folk culture are taken into account—the collapse of the state health system and one-child policy, and longstanding predilections for using, say, bear's bile as a remedy for impotence or arthritis—the impact is even greater. The surging growth of Chinese consumerism has created what Gerth calls "extreme markets"; there is a proliferation of bear farms in China, and local tigers are being hunted to the point of extinction for their skin, used in clothing, and their bones, which are an ingredient in Chinese medicine. The abrupt withdrawal of the state from the provision of healthcare in the 1990s—a decision gradually being reversed—spawned black markets for kidneys and livers. Yet Gerth points out that despite the millions of Chinese who need organ transplants, the majority of the 20,000 transplant operations performed in China each year involve foreign patients, simply because they can pay higher fees.

From a standing start in the aftermath of Mao Zedong's death, Chinese consumption has grown astoundingly. Gerth says the expansion is the deliberate outcome of government policy to spur economic growth. That is true as far as it goes. In the interest of greater precision, he could have added that consumption has flourished in tandem with the Communist Party's decision to largely remove itself from the private lives of its citizens. Even while restrictions on political liberties have remained firmly in place, opportunities for individual Chinese to grow and prosper have expanded enormously.

* * *

Myriad choices and decisions once required the party's permission: where you lived, worked and studied; how much you were paid; where you went to the doctor; whom you married, on what date and when you started a family; where you shopped and what you could buy; when and where you traveled, and with whom. One by one, these matters have been left to citizens to sort out, or at least to city dwellers with adequate cash. The rules that long discriminated against rural residents by restricting their ability to move to urban areas—the government has always feared that free movement would create rowdy, crime-ridden slums in cities—are also, slowly, being unwound.

The car market is one of Gerth's touchstones for obvious reasons. Just as it did in the United States, the car evokes wind-in-the-hair images of greater personal liberty, status and advancement, ideas that are seemingly antithetical to the party's ethos. "The desire for cars here is as strong as in America but here the desire was repressed for half a century," an academic, Li Anding, tells Gerth. Or as one young Chinese told me even more succinctly: "We want what you want."

Since the government started to encourage personal vehicle ownership in the past decade, China has become the largest car market in the world. Car sales have increased dramatically: from about 1 million in 2002 to 3.5 million in 2005, 8.3 million in 2009 and an expected 10 million–plus this year. "China has added the equivalent of two Japan markets in less than a decade," Michael Dunne, who consults on the China car market, told me. "At this year's market of 10 million–plus passenger cars, if you take a room of 150 Chinese people, just one of them is buying a car. As large as the market has become, we're only scratching the surface in terms of potential demand."

The growth has not just been in mid-range vehicles. General Motors wants to take the Buick upmarket for good reason. In 2009 Chinese bought more than 8,000 Porsches, which started in price at $125,000; 90 percent of the cars, which were mostly Cayenne SUVs, were paid for in cash. So far this year, Chinese are on track to buy 15,000 Porsches. Last year, when an obscure Chinese company tried to buy GM's Hummer brand, pundits called the move a "China takes over the world" moment. Few cottoned on to the reason the company wanted to buy the brand—to service the Hummer subculture among China's coal barons. The purchase was vetoed by the Chinese government because it was drastically at odds with the greener image it is keen to project. In 2010 the Chinese will buy 500,000 cars in the luxury bracket, up from 100,000 five years ago.

More than just a consumer phenomenon, mass car ownership has transformed Chinese cities along the lines of American-style metropolises, with the construction of large, sweeping highways and gated communities, all developed far in advance of public transport. Train and bus routes are being built at a rapid rate in cities like Beijing and Shanghai, but for many people they are too late. People don't simply want a car. In the newer suburbs ringing Beijing and Shanghai and many other cities, they require one.

The development of the mass car market, and an acute demand for many other products, especially private housing, has profound implications for the world economy. China's insatiable demand for oil and other resources, such as iron ore needed to make steel, has reverberated around the globe in multiple ways. The prices of commodities—including food, energy and metals—have entered a super-cycle not seen since the mid-1950s, when price rises were triggered by the US postwar boom and the reconstructions of Europe and Japan. China has made a bundle shipping cheap goods to Wal-Mart and the like, but its demand for raw materials has been forcing up the costs of imports at the same time. In the process, China's economic takeoff since Beijing joined the global trading system as a full-fledged member in 2001 has established a new rule of thumb for the global economy: If China buys it, the price will go up. If China sells it, the price will go down.

* * *

Much Western commentary about China has long leaned on the notion that the country would collapse under the contradictions of a sclerotic Communist Party presiding over a frontierlike capitalist economy. Aside from such a prediction being, so far, spectacularly and consistently wrong, it also misses the point. China might destabilize the world if it fails. But any country of China's size, growing as rapidly as it is, will destabilize the existing order to a much greater extent if it succeeds. The rest of the world will have to adjust and compete on multiple fronts: for military dominance of the sea lanes in Asia; for oil in Africa; for manufacturing jobs; for new norms at the World Bank and the International Monetary Fund; for the latest mobile phone standards. Name any global economic, political or technological issue, and China is increasingly positioned at the heart of it.

All of this would seem to add ballast to Gerth's central thesis—that the Chinese consumer will be the prime determinant of the global economy. There are good reasons to be skeptical of the prediction. What about India, for starters? The Indian economy is growing strongly, and India's population will likely surpass China's in coming decades. Also, Chinese brands are not taking command of consumer markets as domestic demand expands. Western and Japanese car companies (which are forced to operate in fifty-fifty joint ventures with Chinese state-owned partners) still account for about 70 percent of China's passenger vehicle market. Chinese state and private companies have not been able to match their foreign rivals in building brands and manufacturing technology, despite the best efforts of bureaucratic planners to help them.

But the main gap in Gerth's thesis is its failure to explain why the Chinese remain chronic underconsumers by the standards of modern industrial economies. Gerth does discuss the Chinese government's efforts to turn once frugal Chinese into US-style consumers, but without explaining properly why those efforts have failed thus far. True, Chinese consumption in the aggregate has grown prodigiously, but mainly because China is such a populous country. What Gerth passes over is the fact that Chinese consumption as a percentage of economic output is remarkably low, at about 36 percent. Not only is that about half the US rate, and well under rates in Europe and Japan, but it is also much lower than the consumption rate in China in the past. In 1997 the rate stood at 45 percent. Today's consumption share is about the lowest of any significant economy, which is all the more shocking when you consider how many hundreds of millions of people in China still live in poverty.

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