As exports and investments, two key growth engines, are both showing signs of notable slowdown in China, consumption is becoming more important in underpinning the nation’s economy.
But the sad truth is that mainland consumers are spending an increasing amount of money not in China, but overseas.
Amid this situation, it is important that the spending of the citizens be diverted back home.
Official data shows Chinese tourists spent up to 1.5 trillion yuan last year, of which 800 billion yuan was spent on shopping, and 700 billion yuan on flights and hotels. Also, Chinese have spent some US$150 billion or about 1 trillion yuan in buying properties overseas.
Overseas spending has been expanding at much faster pace than domestic consumption.
Chinese overseas consumption jumped 20 percent last year. Apart from buying luxury items, tourists are also spending more on daily necessities, such as baby formula, drugs or home appliances during their trips.
More Chinese are also traveling overseas for body check-up or plastic surgery. An influx of Chinese customers, for instance, has boosted the plastic surgery sector of South Korea. The boom is such that I was approached by Korean officials to invest in a cosmetic surgery project targeted at Chinese customers.
Better prices are one reason why Chinese prefer to shop overseas. But there are also other, more important, factors.
The first is product quality and safety. Many Chinese opt to shop in Hong Kong or other places because they believe they can get better products.
China is yet to resolve product safety issues three decades after it began opening up its economy. This has prompted many people to buy goods overseas, rather than at home.
A proliferation of e-commerce, where buyers don’t get to meet sellers, is making the product safety issue even more complicated.
Shopping experience and services, too, are also much better overseas. In China, it’s quite difficult to declare that the customer is king.
If we address all the problems and manage to bring even one-third of the Chinese tourists’ overseas spending and property purchases back home, it will contribute one trillion yuan to China’s GDP, or one percentage point to the growth rate.
Increased consumption will lead to more tax revenue and create additional jobs in the country.
Now, we come to the question: how do we bring about this?.
I think the key issue that must be addressed is product quality. And we also need to invest in brand building.
Mainland consumers don’t have faith in locally-made products, not least because of the counterfeit goods issue.
In developed countries, people found selling fake products are put in jail. But in China, the law is relatively lax in dealing with such crimes.
We need to adopt tougher rules if we want to rebuild our consumers’ confidence in made-in-China products.
This article appeared in the Hong Kong Economic Journal on Aug. 29.
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]