China’s Consumers Increasing the Price of Provoking the Dragon

Australia’s governments, businesses and media have accorded inadequate attention to the power of the Chinese consumer when picking fights with Beijing.

This is in large part because they believe China’s growth is sustained by infrastructure develo­­­pment.  Indeed, Australian officials were looking forward to a Covid-19 resources boom similar to that generated by China’s response to the GFC. Consequently, they would have been only marginally concerned when China’s Global Times newspaper warned that continued expressions of hostility toward China will cause Australia to “completely lose the benefits of Chinese consumers” and advised that Australians should appreciate that thus far they have only seen the “tip of the iceberg” that is the loss that can be imposed by Chinese consumers.

In his address to the 2020 National Congress China’s Premier Li Keqiang gave indication that the iceberg may already have imposed significant costs on Australia. Dousing expectations of a new resources boom he announced that the much anticipated covid-19 stimulus will allocate only 30 percent of the associated funds to infrastructure while 70 percent will be directed to bolstering consumer demand. Expanding, the Premier underscored China’s economy has become far more dependent on consumers than on building roads, ports and cities. The validity of this claim has been attested by David Goldman who in the Asia Times observed that in recent years the “strongest performance in China’s stock market came from consumer staples, information technology and health care, reinforcing the impression that Chinese consumers are driving the recovery.” https://asiatimes.com/2020/06/china-leads-world-economic-recovery/ 

As the foregoing figure evidences the emphasis on the consumer has become particularly pronounced since 2015 when the US announced its ‘Pivot to Asia’. A development that presumably reflects Xi Jinping’s desire to bolster support within the working class in the face of growing US hostility.

The World Economic Forum has suggested a consumer led recovery in China is unlikely because consumer sentiment has been dampened by covid-19 and consequently potential buyers will hold on to their resources for fear of a ‘Second Wave”. Supporting this suggestion, one study found 41% of surveyed respondents plan to reduce spending, 51% will work harder in order to save more and only 8% plan to increase their consumption.  Such studies, however, overlook the fact that Li Keqiang has read both Marx and Keynes and is well aware that the poor are inclined to spend a greater share of their income than are the affluent. In this regard it is wise to remain aware that the Premier has advised the stimulus will direct resources to:

Micro, small, and medium enterprises and self-employed individuals, low-income groups including rural migrant workers, workers in flexible employment and in the general service sector, and vulnerable groups including the poor, the unemployed and people living on subsistence allowance and provisional relief.

Observers, who hope that at least the share of the stimulus to be directed to infrastructure will boost Australian exports should also remain aware the nature of infrastructure construction in China is evolving. Li has that only two of the seven infrastructure fields in which investment will be concentrated require substantial steel inputs. These are rail systems and ultra-high voltage power lines. But this is not true of the other five which are data centres, artificial intelligence, car-charging stations, 5G networks and the industrial internet.

In summary, Australian officials and businesses need to appreciate Chinese consumers have already cost Australia a much desired resources boom and that Beijing has the capacity to direct these newly empowered consumers, to raise the price we may have to pay for our insatiable desire to pander to Washington.

print

Chris Nyland is a Professor of International Business at Monash where he teaches and researches in the areas of Chinese Education Reform, Management History, and Geopolitics and Business Globalization

This entry was posted in Asia, Economy. Bookmark the permalink.

4 Responses to China’s Consumers Increasing the Price of Provoking the Dragon

  1. Avatar Anthony Pun says:

    P&I is scholarly and sophisticated blog and expects a wide range of viewpoints from writers. However, I feel saddened that comments have degenerated into name calling such as “another craven apologia for China”.
    Prof Nyland’s message is simply this: There no bigger buyer than China for Australian exports, and if we want to continue to enjoy our living standards then there is no alternative in the next 5 years. Let’s focus the matter on buyer and seller and not use bigoted geopolitics of superiority in determining our national interests.
    Escalating Australia-China relations to a trade war and Cold War would be disastrous for community harmony in Australia with 1.2 million Chinese Australians who also want to maintain a good standard of living.

  2. Avatar Kien Choong says:

    I think the shift from investment led growth to consumer led growth is part of a longer term trend, and in fact pushed by the IMF, World Bank, etc.

    This article is perhaps a little too Oz-centric. China’s policies does not revolve around Australia!

  3. Avatar Barney Zwartz says:

    I’m afraid I see this as another craven apologia for China, in which all the responsibility is laid at the feet of Canberra. It implies to me that Chris sees our natural posture vis a vis China as on our knees in supplication, begging them to take our materials.
    The fact is that China has shown itself utterly untrustworthy as a trading partner. It’s stounding that this has come as a shock to Australia as Beijing’s latest bullying differs only in scale, not in style. We were reckless to become so reliant on China, and now we are paying the price, and we will have to move on. Good news about Morrison and Modi reaching an understanding, then.
    As for Chinese consumers, as I’m sure Chris knows, they generally love and trust Australian consumer goods. The blockage is not their desire to buy Australian, but the blackmail by an utterly repugnant regime.

Comments are closed.