21 March 2019
China's younger generation is increasingly opting for online shopping, providing a new growth engine for the economy. Photo: Xinhua
China's younger generation is increasingly opting for online shopping, providing a new growth engine for the economy. Photo: Xinhua

China economy to rely more on e-shoppers, not homebuyers

China’s e-shoppers will take over homebuyers as the main engine of economic growth in the years ahead.

The nation has transformed its economy from an agricultural backwater into an industrial power within three decades after the government kicked off its opening-up policy in 1978. The gross domestic product per capita has soared more than 10 times during the period, and as many as 600 million people have been pulled out of poverty.

During the process, China has also become a world manufacturing center. However, the demographic dividend has been fading off since 2007. Wages have posted an annual growth of nearly 14 percent since 2007, and Chinese workers now enjoy salary levels several times higher than those of their peers in Vietnam.

That has come along with swelling land and raw material costs. And the pain of industrialization has become more acute amid rising energy demand and environmental deterioration. 

China bade farewell to its long-time heavy reliance on exports in the wake of the financial crisis between October 2007 and March 2009, as it lost its edge in cheap labor, land and resources. It has made a shift to a consumption-led economy.

However, the nation has chosen a different path by rapidly expanding e-commerce, such as online shopping, online games and online wealth management. By contrast, a number of giant retailers such as Sears, Best Buy and Walmart have been created during the US economic shift towards domestic consumption. China has already become the world’s leading e-tailing economy.

China’s birth rate has been rising since 1949, and a massive number of workers in their 20s and 30s have been absorbed in its industrialization drive since 1978. The second generation of Chinese born around 1978 have received better education than their parents who mostly live in the countryside. The second generation have become the pillar of home purchases in various cities in recent years. However, the home purchase fever may wind up soon.

China’s real estate market has already been struggling with oversupply, except in the first-tier cities of Beijing, Shanghai, Shenzhen, Guangzhou and Hong Kong, according to a report released by the Urban Land Institute, a US nonprofit research and education organization.

Real estate investment in tier-2 and tier-3 cities has been declining, particularly in the residential market.

Housing consumption accounts for about a quarter of a middle-class family’s income in most developed economies, while the ratio in China is 50 percent or even higher. Japan also went through a similar situation in the 1990s, which led to property price falls for 18 straight years. The ratio in today’s Japan is about 30 percent.

A shares have rallied 19 percent in one month, making China the best-performing market worldwide. The rally has come after the central bank made a surprise interest rate cut last November, which fueled market speculation that Beijing would pump more money into the financial system this year to stem the slowest economic growth since 1990.

We expect the low interest rate, low inflation and low GDP growth will continue in 2015, and the central bank may cut interest rates by no less than two times. However, rate cuts do not necessarily drive up the stock market.

China’s  new leaders including President Xi Jinping and Premier Li Keqiang have acknowledged the “new norm” of 6 percent GDP growth.

Also, the nation is set to face the world’s fastest aging population before 2025. And baby boomers who were born after the 1980s have already completed their home purchase plans.

In lower-tier cities, a family belonging to the 80s generation owns 1.14 homes on average, and the nation’s urbanization ratio already reached over 50 percent in 2014, according to government figures.

– Contact us at [email protected]


Chief Adviser at the Hong Kong Economic Journal

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