Domestic Consumption Model in China

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Introduction

In the recent years, China has undergone a series of crises and radical changes that characterise its evolution. Consequently, the country has initiated a clear objective to rebalance its economy through promoting domestic consumption.

The traditional Chinese society developed under both the imperial and Confucian values and it was later reshaped by the impacts of the Cultural Revolution and now the burgeoning policy recommendations favouring domestic consumption.

Each of these defining moments has faced strong challenges regarding its social codes, values, principles, and motifs towards reorienting the economic model. Considering the Chinese history, the last two decades have established the progress that has elicited an extremely swift evolution.

This evolution has attracted close relations between China and the West. For a long time, China was viewed to advance a closed economic model up to the 1860s when the country’s foreign policy was magnified through the establishment of the Ministry of Foreign Affairs.¹

Unlike then, today the situation has been reversed entirely. China has willingly engaged in economic ties with the West and economic ties have thrived under a genuine line of cooperation. The culture, market, and attitude have been the central tenets fostering success in this newfound cooperation.

Following the excessive investment by China in the global economy and particularly in the export sector, the danger of exploiting the available resources is imminent.

If this trend persists, valuable resources could be depleted at a time when China’s capability to fund investments is experiencing escalating setbacks coming from the declining capital resources and labour.

Therefore, economic investments should be concentrated in areas with greater potential and lasting benefits to domestic consumption rather than being directed towards the development of the Western regions.

However, investments in local sectors such as agriculture, real estate, and manufacturing among others have been found to provide more lasting spill over to household income and consumption as opposed to investment based on exports.²

Financial policy reforms would promote such restructuring and ensure financial stability and efficiency in the long term. In line with those objectives, China is determined to establish a consumer-based growth by reorienting investment and increasing efficiency.

The big question remains as to whether the policy recommendations would be formulated without incurring the social ills of western-style consumerism, which are evidently permeating the Chinese society.

The current research is consistent with the argument that the China’s growth model, which is highly dependent on exports, may have exploited its course. Apparently, China seeks to explore alternative growth models amid internal and external environments altered by the economic global crisis.

For many centuries, China, in the eyes of the West as well as the whole world, stands out as the major exporter of major products such as tea, silk, and porcelain.³ The key inventions of China such as gunpowder and compass are highly utilised in the West and they have had a great impact on technology all over the world.

However, many traditional Chinese values have been strongly subjected to change concerning Western influence. S

ome of the themes identified as being exposed to these influence include globalisation, emerging individualisation, family orientation, change in women roles and status, capitalistic orientation, and a shift in worldview.

Based on the aforementioned background, this article examines the emerging trends in the Chinese attitudes towards globalisation and the possibilities of enabling changes without interfering with the Chinese traditional values.

This perspective defines consumption as utilisation of goods and services possessing exchangeable value.

On the other hand, consumerism refers to the act of protecting consumers from unscrupulous business activities such as counterfeit goods, dangerous products, and deceiving advertisements.⁴ Consumerism in China entails promoting consumer interests with regard to the high rate of globalisation and individualisation.

The following questions will be handled in this paper. To what extent do the Chinese citizens perceive globalisation as beneficial to the country’s economy? How do their traditional values relate to their perceptions towards globalisation?

Do the Chinese residents realise that globalisation can have positive and negative consequences for economic growth? If yes, to what extent?

If culture, religion, family, and politics are important in predicting the fate of economies, how then do the Chinese people learn about them?

Handling these questions will shed light on some common social barriers that the Chinese government is likely to face as it attempts to pursue its current objectives on domestic consumption.

Simple descriptions will not serve the purpose; however, this paper will embark on an approach that incorporates comparisons of cases between states to explore these variations. Shaping people’s attitudes on this matter can help in the reduction of social resistance.

The government can utilise the media to advocate a worldview justifying its new course and policies. It should be noted that in spite of the large evidence of discussions and research regarding this matter, the Chinese society is yet to develop an informed opinion regarding the domestic consumption model.

In a bid to understand the current state of knowledge, this paper will partake a literature review on various studies to shed light on some key issues such as self-sustaining consumption and changes in global economy.

Literature review

In a previous study by Yang, it is argued that the China’s dependency on export appears alarming as imports form a vital component towards strong and competitive economies.⁵

Imports broaden the consumers’ choices in the market coupled with increasing efficiency by introducing competition as domestic companies are challenged with a wider scope of products and updated technology.

In China, promoting imports has grown to a primary goal that policymakers have recommended through key policy documents.

For instance, in May 2012, the State Council provided guidelines to boost imports by targeting quality and advanced products.

In this way, this paper aims at highlighting the kind of products that need to be imported in a bid to generate lasting economic benefits as China tries to stage a more consumer-oriented model in the new future.

Another study by Faure supports these claims. Faure identifies that for China to ensure a self-sustaining economy, whilst handling the numerous economic global challenges, increasing the number of imported products would benefit the economy in the short run in various ways such as ensuring steady supply of higher quality goods at affordable rates, thus promoting the growth of China’s domestic economy.⁶

In addition, this move would promote the rebalancing of the current state of the economy by decreasing dependency on exports, hence enhancing a more stable growth.

In a bid to further the stated policy objectives of promoting domestic consumption, China has to double its efforts to increase imports. There is a need to change the regulatory measures to promote imports.

Apparently, in various sectors the Chinese firms and consumers encounter legal constraints and other practical impediments that make it challenging to purchase imported goods. Retail, express delivery, agriculture, and certification are some of the sectors that face such barriers.

Eliminating these barriers would enable inflow of high-quality products into the Chinese economy coupled with placing the country on a stable platform towards achieving domestic consumption.

Nevertheless, some of these barriers even when eliminated seem to be stereotyped and rooted in the Chinese consumers’ attitudes.⁷ Some of the sentiments influencing these barriers will be discussed below.

Current economic condition

Within the past three years, the trends in the Chinese economic growth have been declining gradually. Back in mid-2012, the Chinese markets experienced unpredicted rise in prices of consumer goods and services by about 2.2%.⁸

The central bank retaliated by cutting interest rates on various commodities to evade slowdown in the economy. While it is evident that China was as well affected by the external factors such as the global financial crisis in 2008/09, its current condition is highly attributable to the suppression of domestic consumption.

Figure 1 below demonstrates that China’s economy is experiencing a negative growth and if the trend continues, it might be heading to the slowest growth rate recorded in more than two decades.

China’s growth model from 2008-2012

Figure 1: China’s growth model from 2008-2012⁹

Globalisation

Globalisation is a term used to describe that act of extending investment funds and business beyond the domestic realms coupled with enhancing connectivity and interdependence of the world’s economy.¹⁰

Due to the increasing effects of globalisation, changing consumer habits have now revoked some new trends in the consumer needs. Sophistication and face value have become crucial predictors and preferences among the Chinese elites and the trend is rapidly taking similar shape with that of the Western consumers.

International advertising has now targeted the Chinese markets, but the challenge of restrictions on product inflow into the Chinese markets might compel the consumers to travel overseas to satisfy their tastes, hence discouraging domestic consumption.¹¹

The old stereotypes regarding consumer nationalism is one of the basic barrier preventing the actualisation of globalisation benefits in the Chinese economy. By identifying their corresponding national origins, consumers initiate a kind of rejectionist attitude to these international brands.

Many Chinese consumers dream of an economic system that promotes reforms and opening up. In such dreams, studies by Dong and Kelly have indicated that most Chinese consumers favour the entrance of the Western industries into the Chinese markets and using these products as a way attaining the desired leisure and status.¹²

Without embracing imports, such provisions are denied and consumers are compelled to trade abroad. However, to what extent do such relations ensure traditional Chinese values are sustained and the aversive Western styles are not imported in the process?

With the current shifts in social expectations, improving lifestyle and the persisting Western influence in China, the Chinese consumers have adopted cultural changes, which are initiated by immigration, multiculturalism, and globalisation. The competing cultural forces are shaping the Chinese consumption behaviours.

The globalisation of production, labour, and media has translated to the globalisation of the consumer culture and traditions. While some put into consideration the threat of cultural erosion, they find it hard to abide by the Confucius traditional practices that may have the capacity to tolerate the ancient culture.

Such conflicts are experienced differently across the Chinese consumers with the young educated lot being propelled by personal desires.

Despite being identified as the global manufacturing giant, China in the last three years has experienced a financial downturn, which has fuelled the need to reinvent the growth model.

Even though government expenditure is increasing, this investment boom might crumble under its weight if not redirected to domestic consumption.

Figure 2 below shows an upward spiral in investment, but it should be noted that an increase in investment does not necessarily translate into a positive economic growth, since other factors such as consumers’ tastes have to be factored.

The expenditure level from the year 2002-2012

Figure 2: The expenditure level from the year 2002-2012¹³

In a bid to sustain growth rates, the Chinese decision makers should also factor in how to handle the new demands of the upper middle class such as high standards of lifestyle and enjoying a higher portion of the Chinese economic rewards. Although the current model may have to wait for long until effective results are evidenced, partly because it relies on giving out money to steer investment, in the long-term the economy will be in a position to self-sustain without depending on the government funding.¹⁴ With time, the huge investments, which are being laid in China, will start paying off, but the Chinese leaders have to devise ways to boost the people’s desire to consume imported products. Since the Chinese population accounts for the highest consumers of expensive products, leaders should ensure a steady supply of these luxury goods in the Chinese markets.

Creating a consumer culture

Culture entails the quality in an individual or a society emerging from the concern of what is considered as the standard regarding societal practices, philosophies, and laws among other factors. Domestic consumer spending is the key incentive to economic growth in the developed countries.

For instance, the American consumers were the major propellers of the US growth and they stand out as the main external contributors to the China’s economic growth since they import a large variety of products from the country.

With the current state of affairs in the Western economic crisis, it is gradually becoming an unfavourable destination for the Chinese products. Thus, China is obliged to shift from an export-oriented economy to a domestic-oriented model and the prospects lie on the Chinese policymakers and consumers.

Currently, the domestic consumption contributes up to 44% of the country’s GDP with the rest being catered by export revenues. Some of the various incentives that can increase GDP with respect to domestic consumption include increasing urbanisation as half of the world’s new shopping hubs are being erected in China.

This move will ensure that the products, technology, quality, and taste measure up to the expectations of the Chinese consumers as well as preserve their cultural identity.

In addition, encouraging investors from all the corners of the world will increase product diversity for the Chinese shoppers are hard to pin down to a specific brand or technology.

At the same time, embracing the Confucius consumption values of moderation and frugality can help in the alleviation of surplus production, waste, and pollution. Traditional Chinese leisure values may also be employed to assist in offsetting work burnouts.

For a long time, Western brands have been idolised as agents of liberation. They were perceived as teachers who freed the Chinese consumers from the traditionally closed ways of reasoning by teaching new practices and creating new ideas.¹⁵ Western products were also viewed as symbols of democracy.

For instance, the Microsoft products offer an online platform that provides a plurality of viewpoints. On the contrary, the western brands are endangering the erosion of the Chinese mainstream culture and this issue cannot be ignored.

Cultural sustainability is a basic factor that determines the progress and stability of the local economy. Embracing Western brands excessively brings the picture of the West as imperialist oppressor and their products as facilitators of domination.

With the new dynamics in consumer taste and preferences, encouraging consumer nationalism can only worsen the situation. The way out must incorporate a model that encourages the fusion of local culture with Western values that promote stability of the Chinese practices.

This goal will be achievable when foreign investment is invited to establish in Chinese markets at the same time providing employment to the locals. This approach would also cut down brain drain, hence encouraging efficiency and consumer satisfaction without having to travel to foreign markets.

In the current economic policy reforms, the West is viewed as economic partners and their products as projectors of economic sustainability rather than instruments of domination. In this context, foreign corporations are perceived to be willing to share knowledge and incorporate the Chinese cultural values.

On the other hand, the Chinese firms are deemed willing to incorporate globalisation in a way that upholds basic elements of the Chinese culture favouring domestic consumption.

Family changes and the process of creative destruction

The entrepreneurial tendencies of the Chinese families for a long time have been embedded in the Confucian values and traditional beliefs of moderation. Traditional beliefs entailed the collective consumption with goods being shared within family ties.

Saving and frugality were the basic virtues of the Confucius model on moderation. These conditions later seemed to tip the economic balance towards an undesired direction.

The stringent saving and closed model encouraged abject poverty, inequality, and other burdens that prevented families from undertaking ambitious economic approaches coupled with eliminating the huge anxiety about mere survival.¹⁶

In the West, entrepreneurship is open and free from family influence. Today, the Chinese families have significantly improved, women have become educated, and their contribution to the domestic economy has significantly increased.

The fertility rate has also been regularised and this factor has enhanced the quality of education, hence developing a highly skilled workforce. These dramatic family changes have influenced the global economy and enhanced the parameters needed for economic progress.

However, with the increasing need to ensure domestic consumption, these family orientations can prove to be vital by forming small, but flexible firms capable of acting to the ever-changing market demands.

Consumer empowerment and changing consumption attitudes are highly needed factors to help in the management of the structural issues that may arise during the implementation process of the current model. Bringing consumption to the household sector cannot happen overnight.

In addition, incorporating the Confucianism values regarding work can help in enhancing domestic production. For instance, Confucianism perceived work as a demonstration of a harmonious social system that worked for the well-being of the society commencing with the family.

Thus, the policy should facilitate this process by altering exchange rate policy to constrain exports, raise the interest rate, and the tax policy. Empowerment should target raising the purchasing power of the people.

This goal can be achieved via initiating policy that lowers domestic taxes on products and services, improving wages, and lowering VAT, thus ensuring a swift domestic spending.¹⁷

Apparently, the Chinese companies that have been exporting have become highly embedded in the international supply chains. They have abandoned the local brands to favour tastes and cultures of the Western markets and other destinations.

They lack marketing and distribution strategies within local markets. The current policies recommend the adoption of these factors or facing restrictions, which might force them out of production.¹⁸

In that case, investments can be channelled to agriculture or other service industry that considers a domestic consumption-oriented Chinese economy.

By this method of creative destruction or rather reorientation, China will face a lot of economic pressure in the short-term, but it will have to adapt to consumer growth in the near future.

This process will not only entail cutting off supplying the rest of the world, but also exports will be highly regulated and based on prior satisfaction of the local consumers ,which is not the case today.

Hindrances to domestic consumption

On the quality of products, the China’s marketplaces are crowded with poor quality merchandise, fake brands, and various tricks of deceiving customers. This practice is prevalent in many developing countries and China, being a culprit, is re-examining its economic policy statement to encourage domestic consumption.

This aspect implies that the quality products, which had been previously directed to foreign markets, will be disposed in the local market and this move will discourage the production and sale of shoddy merchandise to the Chinese consumers.

Consequently, the competition coming from foreign investors will fill any gap that might be promoting consumer marketplace deceptions, which range from tainted foodstuffs to fake service delivery systems.

Largely, the Western influence has altered the way consumers approach everyday practices in the process developing diverse sets of the Chinese consumer practices.

Low-income consumers search for marketplaces offering cheap or even counterfeit products with no quality guarantees, while the high-end earners spend their hefty incomes on high-status settings.

The new economic models seek to moderate these effects by ensuring that only quality products enter the marketplace and with affordable prices, since the cost of production will be relatively lowered.

Incentives towards domestic consumption

The promotion of domestic spending starts by curtailing consumers from spending abroad. In the recent years, the Chinese residents especially the middle class consumers have demonstrated a great appreciation of the globalising world.

Media globalisation has provided the Chinese consumers with an array of luxury products through online advertisement and purchasing.

According to the China Union Pay, the Chinese consumers used approximately $ 50 billion on overseas purchasing in 2009 and the trend is predicted to prolong for the next decades if restrictions are not put in place.¹⁹

This scenario plays out partly because the Chinese people lack brand loyalty and they seek affordable goods in overseas markets. In addition, alternative markets like the US and France have reduced prices of up to 50% deductions.

On the contrary, the Chinese traditional values have failed to offset the modern perceptions regarding globalisation. For instance, Buddhism, which advanced the spiritual desire for freedom from earthly desires, is today viewed as an element derailing economic growth and encouraging unproductivity.

However, it is hard to avoid some of the social aversions such as the Western advocacy for hard work, which means using the working class as loyal servants to the elite and accumulating wealth for the elites at the peak of the economic pyramid.

Nevertheless, this spirit of exploitation can be minimised by creating work ethics, which can form a basis for the moral legitimacy of a capitalist market.

In comparison to the approach used by the US during the 2009 global financial crisis, the Chinese government should adopt stimulus checks such as improving the minimum wage to give consumers the power to purchase goods that they produce.²⁰

Investment flexibility and democracy should be enhanced under the leadership of the government in a bid to encourage both local and foreign investors.

Banks and individual investors should be allowed to select investment projects based on profitability and sustainability rather than connections on prominent personalities. Market forces such as demand should be left to choose investment projects based on suitable technology.

This move will help the Chinese domestic products to scale the value chain, thus attracting more consumers to spend locally. Largely, domestic consumption will assist in the redistribution of wealth even if not in large margins, and consumers will be in a position to afford products that they manufacture.

Conclusion

Before establishing a consumer culture, there has to be adequate products and services to purchase. The Chinese economy can support these two factors adequately. This paper has sufficiently shown that China has the potential to establish and sustain domestic consumption.

In a bid to ensure steady supply of goods and services to the Chinese domestic markets, this paper has shown that encouraging foreign investment and restricting supply from other countries is necessary.

This paper has also highlighted the current economic status in China by stating that the condition is gradually declining with reference to previous years.

The existing Chinese growth model has been examined for its potential to orchestrate the much-needed growth and it has been found that it can be effective provided it does not relent on its agenda to increase household consumption.

The quality of goods, high prices, and scarcity of various luxury products have been identified as some of the factors that have derailed domestic consumption in the past.

This paper has shown that the Chinese residents understand globalisation from its beneficial perspective and they are inclined to spending more on overseas markets as long as they do not have domestic structures to satisfy their desire for high-quality life.

This article has also elaborated on how the traditional Chinese values such as moderation and frugality influence the domestic consumption growth model. With the high rate of economic growth in China, restraining expenditure when products are available at affordable prices is unreasonable.

As indicated earlier, moderation should only be applicable when the markets are flooded to avoid wastes. Structural issues ought to arise and initiate turmoil in the process of reorienting the growth model, but this paper has shown that restraining exports is necessary since the efforts will start to pay off in the near future.

Lastly, this paper has highlighted and explained some of the key incentives that are necessary to prevent the Chinese consumers from shopping abroad, which has been a growing and persistent trend.

Levelling the market grounds to favour flexible and democratic investment has been found necessary especially when the government officials are involved in the process.

Bibliography

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Hanser, A., ‘Uncertainty and the Problem of Value: Consumers, Culture and Inequality in Urban China’, Journal of Consumer Culture, vol.10 no.3, 2010, pp.307–332.

Lee, F., Zhou, H., Chin-chuan L., Wan-Ying, L. &Yao, M., ‘The Attitudes of Urban Chinese towards Globalisation: A Survey Study of Media Influence’, Pacific Affairs, vol.82, no.2, 2009, pp.211-230.

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Footnotes

¹R. Nisbett, P. Kaiping, C. Incheol & A. Norenzayan, ‘Culture and Systems of Thought: Holistic Versus Analytic Cognition’, Psychological Review, vol.108, no.2, 2001, p.301.

²X. Zhao, ‘Politicising Consumer Culture: Advertising’s Appropriation of Political Ideology in China’s Social Transition’, Journal of Consumer Research, vol.35, no.2, 2008, p.234.

³ Y. Yan, The Individualisation of Chinese Society, Oxford University Press, Oxford, 2009, p. 121.

⁴J. Xiaochuan & Y. Jianfeng, ‘Understanding the Work Values of Chinese Employees’, Journal of Scientific Research, vol.2, no.6, 2011, p.580.

⁵J. Yang, The Political Economy of Affect and Emotion in East Asia, Taylor and Francis, New York, 2014, p. 92.

⁶ G, Faure, ‘Chinese Society and Its New Emerging Culture’, Journal of Contemporary China, vol.17, no.56, 008, p. 469.

⁷Xiaochuan and Jianfeng, p.583.

⁸W. Wan, L. Chung-Leung, Y. Oliver, T. Alan, S. Leo, K. Kwong & R. Chow, ‘Do Traditional Chinese Cultural Values Nourish a Market for Pirated CDs’, Journal of Business Ethics, vol.88, no.2, 2009, p.189.

⁹Yang, p. 89.

¹⁰C. Wang & L. Xiaohua, ‘Migration of Chinese Consumption Values: Traditions, Modernisation, and Cultural Renaissance’, Journal of Business Ethics, vol.88, no.9, 2009, p. 401.

¹¹ M. Bond, The Oxford Handbook of Chinese Psychology, Oxford University Press, Oxford, 2010, p. 83.

¹²L. Dongand & K. Tian, ‘The Use of Western Brands in Asserting Chinese National Identity’, Journal of Consumer Research, vol.36, no.3, 2009, p. 512.

¹³Yang, p.90.

¹⁴ A. Fowler, G. Jie & L. Carlson, ‘Public Policy and the Changing Chinese Family in Contemporary China: The Past and Present as Prologue for the Future’, Journal of Macro marketing, vol.30, no.4, 2010, p.345.

¹⁵M. Griffiths, C. Malcolm & F. Christiansen., ‘Chinese Consumers: The Romantic Reappraisal,” Ethnography, vol.11, no.3, 2010, p. 337.

¹⁶A. Hanser, ‘Uncertainty and the Problem of Value: Consumers, Culture and Inequality in Urban China’, Journal of Consumer Culture, vol.10, no.3, 2010, p.332.

¹⁷F. Lee, H. Zhou, L. Chin-chuan, L. Wan-Ying & M. Yao, ‘The Attitudes of Urban Chinese towards Globalisation: A Survey Study of Media Influence’, Pacific Affairs, vol.82, no.2, 2009, p.213.

¹⁸ J. Liu, H. Chun, L. Cynthia & Z. Chen, ‘Fulfilling Obligations: Why Chinese Employees Stay’, International Journal of Human Resource Management, vol.64, no.1, 2011, p. 45.

¹⁹Yang, p. 111.

²⁰Nisbett, Kaiping, Incheol, and Norenzayan, p.309.

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