Thu, May 03, 2012 - Page 9 News List

Inequalities hobble China’s next leap forward

Within a generation China is likely to replace the US as the biggest market in the world, as Beijing’s five-year plan switches focus from exports to domestic consumption

By Patrick Collinson  /  The Guardian

Illustration: Mountain People

Made in China says everything, economically, about the past decade. Sold in China tells you everything about the next.

Recent output figures from China were greeted with concern after the country reported its lowest GDP growth for three years, although, at 8.1 percent, it is magnificent compared to many. Still, there is much talk among economists about a “hard landing,” a “property bubble” and “bankrupt banks.”

However, there is one key fact to remember about the economy in China. It is that the minimum wage is going up 15 percent a year, every year, for the next five years. Take a billion workers and give them a 100 percent pay rise. It changes everything.

Within a generation, China is likely to displace the US as the biggest consumer market in the world. At Tianjin Port, the world’s fifth-biggest, container ships used to export Chinese goods to the rest of the world, but come back empty. Now they return with the finished and semi-finished goods from the rest of the world to satisfy a ravenous consumer appetite.

In Tianjin’s vast factory zone (across the road from a Foxconn plant making the next wave of Apple iPhones), the Master Kong factory makes more pot noodles than anywhere else in the world. The huge automated production lines, with machine tools imported from Japan and Germany, churn out 5 billion noodle packets a year — enough to reach to the moon and back. All the raw materials come from China, all of the finished product is consumed in China. It is just one of 23 Master Kong plants on the mainland.

Further south in the “groundscraper” (and weirdly Hogwarts-esque) Shanghai offices of Ping An, China’s second-biggest insurer, 12,000 commission-led telesales agents make 1 million sales calls every day. It is the largest telemarketing operation on the planet, feeding on the explosive growth of domestic car sales.

Last year 14.5 million cars were sold in China — or 2 million more than in the US, previously the world’s biggest auto market. Nine in 10 were to people who had never bought a car before. Ping An now insures 32 million private cars, raking in premiums of £2.2 billion (US$3.6 billion) a year. Four years ago, that revenue was below £100 million.

As the Beijing auto show opened (it has replaced Detroit as the barometer of the industry), Ford said it was pressing ahead with its fifth giant factory in the country, and Volkswagen its seventh. Industry experts say sales will rise to 40 million a year by 2020.

In a country where air quality is staggeringly bad, the environmental consequences are terrifying. So is the outlook for the price of gasoline, which sells in China for about half the price in Britain. If the country reaches US levels of car ownership, China alone will need to import more oil than is currently produced from every well in the world.

It does not appear to concern the 4S showroom in Beijing, the biggest BMW dealership in Asia. Sales of luxury cars were up 30 percent in the first quarter of this year, and after signing a deal to distribute Range Rovers, they are selling every (UK-made) Evoque they can get their hands on. The waiting list stretches for months.

China’s industrial revolution has created hundreds of thousands of US dollar millionaires, and more than 400 billionaires, second only to the US. That translates into extraordinary sales of luxury goods, although much of that is in Hong Kong as wealthy consumers skirt import tariffs that make prices in Shanghai 40 percent higher than abroad.

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