Winston Mok

China’s drive to boost consumption hinges on better social welfare and rural incomes

Spending will remain restrained unless an improved social security system frees up savings and rural development raises incomes for the poor

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Farmers pick crops in Bozhou, Anhui province. Rural Chinese make and spend at least 40 per cent less than their urban peers. Photo: Weibo

Winston Mok

Published: 6:45am, 11 Nov 2020Updated: 8:11am, 11 Nov 2020

China must develop its plans for the next five years and towards 2035, with an aspiration for national rejuvenation, in a much more hostile and uncertain external environment. A White House led by a less mercurial American president may make any China containment measures less confrontational, but they could be more effective. Understandably, Beijing has made domestic consumption a centrepiece of its “dual circulation” strategy.

The scale of China’s economy, unlike in Singapore or South Korea, means it cannot rely on exports forever. Domestic-oriented growth is feasible as China becomes the largest consumer market in the world.

From the China International Import Expo, which concluded in Shanghai on November 10, to the online shopping frenzy in the run-up to Singles’ Day, we are witnessing the tremendous potential and realisation of Chinese consumer power.

But perhaps more than the quantity or quality of Chinese consumption, it is its streamlined form that is truly remarkable. China’s new flexible manufacturing makes it possible for personalised, even made-to-order goods to be delivered from factories-cum-online shops directly to consumers.

Consumption as an economic growth engine is not a new idea for China. In place of a reliance on investments and exports, China’s top leadership first broached the idea of consumption-driven growth some 15 years ago. China’s consumption, as a percentage of its economy, is unusually low, (39 per cent in 2019) an improvement from 33.8 per cent in 2010, but still far below the 67 per cent in the United States and 69 per cent in Hong Kong.

Even though consumption has been a major driver of China’s economic growth in the past few years, this must be seen in a historical context. Since China joined the World Trade Organization in 2001, its net exports and investments have surged, but at the expense of household consumption, which declined from 46.4 per cent of gross domestic product in 2000 to 33.8 per cent in 2010.