The Key NPC Takeaway: Developing China’s Domestic Consumption Vital for Growth

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Op-Ed Commentary: Chris Devonshire-Ellis

Mar. 18 – With all the ballyhoo about the new Chinese politburo now being in place (an issue that was already well-known months ago), the real issues surrounding the current National People’s Congress are the key policies that it intends to implement.

A number of social issues that are upsetting the stability of the Communist Party have begun to emerge over the past few years, not least the large-scale wealth disparity on a national basis. Despite much of the media and political hype, China remains an aspiring middle-income country, reliant on state-backed investment. Even though it may rank as the world’s second-largest economy, its sheer population volume dilutes the impact when it comes to actual individual spending power.

According to China’s National Bureau of Statistics, the average annual per capita income of the country’s urban residents stood at RMB23,979 (US$3,842) in 2011, while the average for rural residents stood at RMB6,977 (US$1,118). Furthermore, the World Bank in 2008 estimated that 13.06 percent of China’s population (or roughly 130 million people) live on less than US$1.25 a day.

Improving upon these figures is a key element of the next decade in China. As I have pointed out before, although cities such as Beijing and Shanghai may boast glossy Louis Vuitton, Cartier and Porsche stores and showrooms, they are not indicative of China generally. However, as the country’s massive inland markets continue to develop and expand, and the central government continues to make this a national priority, new opportunities to sell to the Chinese market are being realized. Internationally-minded companies involved in manufactured mass market products should be examining the China market to establish how they can adapt their products to fit the new emerging breed of Chinese consumers.

The other key takeaway from the recent government meetings lies in the restructuring of the country’s state-owned enterprises. With little reform in this area during the Hu-Wen decade, much needs to be done to break these up, and make them more efficient. Whether Xi Jinping and Li Keqiang can deliver is another matter – the ability to do so will rely on much political horse trading within the corridors of power in Beijing, and to force the issue one may expect to see scandals and smear campaigns emerge as tactics to strong arm reform into the system.

Time will tell on this subject with regards to how much clout and muscle the new leaders actually have, but the good news, especially for global businesses wishing to sell to China, is that there appears to be unity on the fact that China must raise its income levels and get Chinese consumers to purchase more goods.

Chris Devonshire-Ellis is the founding partner and principal of Dezan Shira & Associates – a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

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