Take the Back Seat: On Chinese Consumerism

Take the Back Seat: On Chinese Consumerism

Take the Back Seat: On Chinese Consumerism

Can the world sustain a country the size of China with an appetite for the good things in life on par with America’s?


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.

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.

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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.

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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.

How has this happened? The government has launched numerous programs to promote consumption, but their influence on the economy has been overwhelmed by more powerful state policies dictated by the interest groups clustered around the party elite. The transformation of China in the past three decades owes much to the animal spirits of the ordinary Chinese, many of whom have grabbed the chance to make money and spend it for the first time in their lives. Much less understood is how the Communist Party has unleashed the state’s animal spirits at the same time, with a force few anticipated. In the early 1990s, Beijing worried about keeping the largely bankrupt old-style state-owned companies afloat. Early in the new century, the restructured enterprises, many of which had been rebuilt from scratch, became so big, wealthy and ambitious that the problem was not how to keep them alive but how to keep them in line.

In China, the state either controls or owns outright the oil, mining, banking, insurance, electricity, ports, aviation, transport and healthcare sectors. Once written off as dinosaurs of a crumbling Communist system, the giants of Communist industry are generating billions of dollars in profits, courtesy of government protection from competition, surging economic growth, cheap capital and efficiencies wrenched out of the companies during their overhaul. In 2007, which marked the historic high point of fast economic growth in China, the combined profits of state enterprises reached about $222 billion, compared with close to zero a decade previously. By 2007 the Fortune 500 list, which grades companies according to revenues, had Chinese enterprises near the top where they once were also-rans. But if China was getting rich, the Chinese were not. From 1997 to 2007, a period that traversed an economic boom, the share of workers’ wages in national income fell, from 53 percent to about 47 percent of output.

The transformation of the state sector had far-reaching benefits for the Communist Party. The swelling profits eased the burden on the fiscal budget, strengthened the state banks’ balance sheets and gave the companies—and by extension, the state—the leverage to buy resources around the world. But the preferential policies meted out to government companies—cheap land, resources and energy, and protection from domestic competition—have ensured that the profits of China’s boom are captured and kept by the state, at the expense of the population at large. Chinese consume relatively little compared with the size of their economy, for the simple reason that they don’t have much money. And much of the money they do have is set aside to pay for the things that the state used to provide free, such as health and education.

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Despite the gaps in its arguments, As China Goes, So Goes the World offers a vivid portrait of contemporary China. One reason Gerth was able to write a book so rich in anecdote and detail is that China’s consumer economy is there for the world to see and record. The political system that guides the economy, however, remains deeply opaque and still operates largely backstage. When I was researching a book on China’s Communist Party in early 2009, I took some time off to read The Inheritance, a lengthy tome about the foreign policy of George W. Bush. I devoured it with great interest, and also, frankly, a touch of jealousy. Written by David Sanger of the New York Times, The Inheritance is full of the detail that insider accounts of Washington politics routinely offer. The most senior members of the administration jump off the pages in their own voices. One moment, you are in the White House with the president. The next, you are transported into Pakistan on CIA drones, which is quite a journalistic feat, as the planes are pilotless.

Seen from overseas, the United States is wonderfully open. By comparison, the top echelon of politics in China is closed to outsiders and, I would venture, to about 99.9 percent of the Chinese people as well. Journalists in Beijing, even Chinese ones, must creep carefully around the edges of the political system to glean morsels of information. If I had gathered for my book even a fraction of the insider information contained in The Inheritance, I joked to friends at the time, I would have needed to leave China before I wrote any of it down.

China retains many formal institutional trappings—such as an executive government, a parliament and courts—that give it a superficial resemblance to a pluralist system. But the party’s pervasive backstage presence means the front-stage role of these bodies must be constantly recalibrated against the reality of the power that lies largely out of sight, behind them. The Ministry of Finance frames a budget each year amid age-old jockeying between rival claimants for limited funds. Ministers meet collectively as a cabinet to battle over their policy priorities, which in recent years have always included exhortations to lift the livelihoods of ordinary people. The many fine scholars in Chinese think tanks produce voluminous, and often influential and incisive, research reports. The courts deliver verdicts on the matters before them. The universities teach and dispense degrees. Journalists write stories. And the priests in the state-approved churches solemnly say Mass and administer the sacraments. But it is backstage, in the party forums, where the real stuff of politics is transacted.

Under the Politburo sits a vast and largely secret party system, which controls the entire public sector, including the military and state businesses, and the lives of the officials who work in all of China’s five levels of government, starting in Beijing. The party staffs government ministries, related agencies and state companies through an elaborate and mysterious appointment system; instructs officials on policy through behind-the-scenes committees; and guides their political posture and public statements through the propaganda network. Should an official be accused of bribery, fraud or any other criminal conduct, he or she is investigated by the party first and only turned over to the civilian justice system on its say-so. Even then, any punishment meted out by the courts is at the behest and direction of party organs, which ultimately control the judges, directly, and the lawyers, indirectly, through legal associations and licensing. The tentacles of the state, and thus the party, extend beyond the government: party departments also oversee the courts, key think tanks, the media, all approved religions, and universities and other educational institutions, and they maintain direct influence over NGOs and some private companies.

For the past three decades, Communism and consumerism have confounded the critics by coexisting quite happily. The surfeit of consumer goods in a society that once suffered from chronic shortages of everything from kettles to basic foodstuffs has helped boost the legitimacy of the political system. But can this marriage last? The answer, I think, lies in the ability of the system to continue to deliver economic growth and the promise, if not the reality, of higher living standards, which returns us to the central question that stalks Gerth’s book: how can the world sustain a country the size of China with an appetite for the good things in life on par with America’s?

Gerth touches the heart of the issue in the last line of his book and, in a way, undermines his thesis that Chinese consumers will determine the fate of the earth. He coins what he calls a “New Golden Rule”: “consume unto the world as you would have the Chinese consume unto it.” Seen from a different angle, this rule underlines how the developed Western world, particularly the United States, still dictates the global debate on consumption. The complaints in Western countries about the growing and ravenous appetites of the Chinese sound deeply hollow as long as China’s citizens insist on maintaining their own lifestyles. “We want what you want.” And why shouldn’t they? The Chinese might gobble up the world, but if they do so, they will only be following the example that continues to be set by the overfed denizens of the West.

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