For over a century it has been the ambition of foreign investors to sell to every Chinese citizen. As a 1921 US Department of Commerce report put it, “…the reason why the prospect of selling goods to China provokes queries is because even the slightest modification in the prevailing mode of life is capable of creating an enormous market…” The 1933 novel Oil for the lamps of China, a tale of foreigners aiming to put petroleum in every household’s lamp, caught the same mood.
But until the early years of the 21st century, however, this has been impossible due to China’s relative poverty, transportation and distribution inefficiencies, and local restrictions. Now this is changing. For the first time, it is becoming possible to reach consumers across the length and breadth of China who are both richer and, because of urbanization, more numerous and simpler to reach – it is easier to market to millions congregated in cities rather than out in the countryside. And the government wants to increase consumption as a proportion of GDP, for good reasons of social stability and to spread wealth more widely.
This is a development that Stephen Roach, chief economist at Morgan Stanley, recently described in Newsweek as “the biggest economic story to come out of China in 25 years”. As he says, “the shift to consumer services hints at big opportunities for wholesale, retail, shipping and e-commerce ventures”, adding, “consumer demand likely will rise up the value chain” from food and clothing to computers and household appliances. This is an issue that differentiates China from other emerging markets (except India and Russia) – it is a continent not a country. Unlike Japan, and Korea, with investment-driven and export-dependent development, China is moving towards a “continental maritime” type of model. In fact, it is becoming more like the US, with a large land area, a relatively large population, and an economy based on domestic consumption.
Equally, the rising costs of land, labour, energy and the other inputs to manufacturing mean the coastal regions of China are becoming less attractive to companies as somewhere to park their factories, whether for export production or (increasingly) to sell to domestic B2B or B2C consumers.
