By Liu Ge Source: China.org.cn Published: 2015-12-25
The huge consumption market will give birth to a new generation of entrepreneurs, who, in their growth, will follow a different path than that of their fathers.
The current round of economic growth that has budded since the beginning of this century marks the longest and fastest growth in China`s history. It is perhaps best characterized by the drive of investment.
The role of consumption in China`s growth has been falling since 2002; its contribution to the GDP shrinking to 35 percent from the initial 45 percent. By contrast, the contribution of investment has been expanding from 35 percent to the current 45 percent. The figure is far higher than Japan`s record number in 1973, when investment accounted for a historical high of 36 percent.
This round of fast growth has seen the rise of countless Chinese enterprises along with their leaders. Of small and medium-sized businesses (SMEs), those in real estate, mining, steel, construction material and the chemical industry account for a considerable proportion.
In this rapid growth, people`s income and consumption both rose accordingly. But due to irrational secondary distribution, more wealth flew to rich people, and this portion of wealth tended to flow back to investment and the consumption of luxurious items.
In such a development model, an entrepreneur`s capability is more embodied in gaining access to resources and investment opportunities through personal connections, whereas technological advancement, industrial innovation, management improvement, cost control and brand shaping, as traditional ways of raising competitiveness, failed to match the growth rate. This is why China failed to nurture reputable name brands or enterprises in recent decades.
While such an imbalanced development is set to be unsustainable, an observant eye on the trivial changes in the Chinese economy will discover that the era of consumption-led economic development is kicking off.
In Beijing, taking a glance at the once highly popular shopping malls, where sometimes sales assistants outnumber customers, one might conclude that people are unwilling to spend. In H1 of this year, total sales revenues in 50 department stores in Beijing dropped by 6.28 percent year on year, reflecting the gloom of the entire retail industry.
Taking the Cuiwei Department Store in downtown Beijing as an example, its total revenue as well as net profit has been declining since 2013. Its financial report shows that in 2014, its revenue and net profit slumped by 10.75 percent and 13.56 percent, respectively, compared to one year earlier. Just two years ago, these malls were having enjoying fiscal success.
At the same time, Joy City, a shopping complex in east Beijing`s Chaoyang District, embodies a completely different outlook. It`s densely populated by shoppers around the year, forming a sharp contrast with the country`s slowdown in the larger picture. The reason is that traditional retail does not account for a major part of the mall`s operation. Instead, various new business forms, such as mushrooming restaurants, cinemas, and children`s learning centers have become the new attractions for shoppers, mostly in the younger generation.
While some economists downplay the O2O (online to offline) economic model, claiming it marks stupidity sandwiched by failure on both ends, the author would like to say that these economists truly represent stupidity.
No matter if in the cafés of Zhongguancun, or the boutiques inside Joy City, you can personally feel how much "public entrepreneurship and innovation" will mean to boost consumption. In these places, the young generation of the so-called "internet aboriginals" are creating new business models and customer experiences to serve their young consumer groups. The supply and demand, along with the service relations, amounts to the brightest section in China`s economic transformation.
After a period of investment-driven growth, the long-repressed Chinese consumption market is entering the eve of a blowout-like development. Current consumption rates in China still lag behind that of other countries in similar development stage by 15-20 percent, and more than 30 percent than that of developed countries. A McKinsey report predicted that China will rise to be the world`s largest consumption power, accounting for one quarter of the world`s consumption market by 2020.
Other speculations asserted that the current round of industrial restructuring in China would put some 80 million people in other jobs. Among these people, more than half will go to the tertiary industries. Relocating tens of millions to different jobs would require millions of entrepreneurs. Therefore, this new generation of entrepreneurs is bound to emerge in the consumption and service sectors. For young people, this is where their future is.
Liu Ge is a senior fellow of the Chongyang Institute for Financial Studies, Renmin University.