Karl Gerth
As China Goes
So Goes the World
Prepared by Michael Marien, Director
 
December 2010
 
 

As-China-Goes
As China Goes, So Goes the World: How Chinese Consumers Are Transforming Everything.  Karl Gerth (fellow at Merton College and Prof of Modern Chinese History, Oxford U).  NY: Hill & Wang (Farrar, Straus & Giroux), Nov 2010/258p/$26.

 

Although China remains a nominally socialist country, consumerism is now deeply entrenched in all areas of Chinese life. Chinese leaders have shifted from the export-led growth model of the late 1980s to pushing their population to consume more as the key to long-term economic growth. Moreover, the global financial crisis has increased the urgency for Chinese consumers to rescue the global economy by saving less and consuming much more. Total consumer spending in China of $4 trillion is still less than half that of the US, but it has surpassed consumer spending in Japan and is closing in on that of the EU. “It has taken China just a few years to learn what took these consumer countries decades: how to spend.” The consequences are radically transforming China and the world.
 
Consuming Is Glorious

As much as a third of China’s 1.34 billion population, or 430 million, can now be classified as middle class—the core consumer class. (In contrast, total US population was 310 million in mid-2010). Some 13% of China’s population—more than 150 million people—can afford to own some luxury goods. China’s personal loan market, established only in 1997, is growing quickly, with mortgage lending expanding by an average of 80% per year. The new opportunities to borrow are quick reversing China’s culture of saving a quarter to a half of their income, and 30% of Chinese families now spend more than half of their income to pay back loans. The Chinese government has implemented the 5-day, 40-hour workweek, and now promotes domestic tourism, leading to a massive tourist industry and ubiquitous travel agencies. Due to a shift to Western-style diets, nearly a third of adults are overweight.

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China’s advertising market has grown by 40% a year over the past two decades and may become the world’s largest by 2020. China now has >2000 newspapers with a total circulation above a billion, the world’s ten largest general-circulation magazines, and >1000 television channels. Advertising in China is now a huge industry, including >80,000 ad companies that employ >1 million people to help build brands.

 
China’s Car Culture

In 2009, China surpassed the US as the world’s largest car market--six years ahead of earlier projections. Soaring demand also created a massive domestic car industry, producing some 10 million cars/year and contributing to a global car glut. “The desire to own a car now permeates Chinese life,” with car ownership equated to personal freedom and prestige. In 1993, China had only 37,000 private cars; it now has >35 million cars, and the number is expected to grow to >150 million within 10 years. Car culture is gobbling up China’s valuable agricultural land: cars are competing with crops to produce biofuels, while swallowing up millions of acres of cropland for roads and parking lots. China is devoting billions of dollars to building roadways. Between 2000 and 2004, the length of China’s motorways was doubled; by 2020, the length of motorways is planned to double again. “As asphalt becomes China’s number one crop, the world’s poor—and everyone else—will pay more for food.”

China’s leaders are aware of unwanted consequences of encouraging cars, and have imposed new fuel economy standards (43mpg), far more stringent than those of the US, while also promoting smaller cars. Chinese manufacturers are racing with other world car companies to produce electric, low-carbon cars. Billions are also being spent to improve public transport in the big cities, e.g.: Shanghai expanded its underground railway from 80 to >420 km in 2010, and plans to have 810 km by 2020—twice the length of London’s subway system.

 
The New Luxury Market

While hundreds of millions of Chinese have been lifted out of poverty in record time, China is also creating a highly unequal society—more unequal than many Latin American and African countries. Ever greater numbers of Chinese are living lavishly, and publicly so, in contrast to the Mao-era ideology of equality, in which displays of wealth were at times deemed crimes against the state. In less than a decade, China has gone from an almost insignificant consumer of global luxury brands to a key market. Wealthy Chinese are at the forefront of a new society dependent on cars, tourism, and meat-based diets. By 2005, Chinese tourists became the biggest spenders of all nationalities, averaging nearly $1000 on shopping per trip abroad. By 2015, China will become the top market for luxury goods (e.g., Cadillac is opening 40 showrooms in China, to tap a market of >5 million potential luxury car buyers).

Golf is the luxury leisure import that conveys the greatest status in China. Since 1984, when China opened its first course since the 1949 revolution, the country added 350 courses, with as many as 1,000 more under construction. Mistresses have once again become status symbols in China, reviving the centuries-old practice of trading or selling concubines (seen as decadent and bourgeois in the Maoist era). The practice of keeping “second wives” or “little Mrs.” is so widespread that apartment complexes in prosperous urban areas are popularly known as “concubine villages.” Being conspicuous is part of the mistress’s job. The newly rich are also hiring bodyguards, to provide security against the emergence of kidnapping and extortion (the Chinese generally despise the rich).

 
Fakery and Extreme Markets

Retail chains and branding have encouraged much more consumption, but consumer confidence is undermined by massive production of Chinese counterfeits in a deregulated market economy, where price and profits are paramount, without parallel commitment to consumer protection. China is both the largest producer and consumer of fake products. Some 15-20% of all prominent branded goods in China are counterfeit, with much higher rates for expensive but easily reproduced products such as computer software and movies, whose piracy rates are >90%. Bogus antibiotics and toxic fake drugs have been known to kill hundreds of thousands in China in a single year, and to contribute to a worldwide epidemic of fakes estimated by WHO at 8% of all drugs.

Producers of fakes can reap huge profits because they avoid costs that legitimate manufacturers cannot: taxes, advertising, labor laws, and environmental restrictions. Localities have a greater interest in producing fakes than the national government has in stopping them, as the national government decreased subsidies for state-owned enterprises, forcing local officials to find new ways to finance local industry. In some instances, factories run “ghost shifts” using cheaper material and unofficial labor. “Entire cities and counties have become regional counterfeiting centers,” with the counterfeit industry accounting for some 8% of China’s GDP. Because China’s 3,000 county courts are under local control, half-hearted enforcement of intellectual property rights continues to ensure production of counterfeits.

A recent addition to the culture of fakes is a phenomenon known as shanzhai, describing products that are not passed off as fakes but as imitations of famous brands at much lower prices, and sometimes with more features e.g. cell phones. Shanzhai products sometimes outperform the originals, enabling consumers to be more comfortable with violating the intellectual property rights of multinationals. By 2008, there were at least 10,000 shanzhai companies in China.

Since 1978, China has witnessed the return of pre-Communist “extreme markets” for seemingly anything that one could buy and sell: children for adoption, young women as wives, sex slaves for the massive brothel industry (some 10 million women and men work in China’s commercial sex industry), organs for transplants (largely from executed prisoners), and sale of endangered species (pangolin meat, monkey’s brain, bear bile, tiger skin and bones, and shark fins for soup). Such markets have deep roots in Chinese culture, but could not thrive without complicity of international markets and consumers.

 
Environmental Implications

One of the major consequences of the unleashed Chinese consumer is environmental blowback. The Chinese now consume four times the number of calories from animals that they did 25 years ago. Ever greater numbers of cattle, sheep, and goats graze on fragile hills and steppes, loosening topsoil that readily becomes massive sandstorms or the blinding “yellow wind.” Deserts have swallowed up thousands of villages; a quarter of China is already desert. China burns more coal that the US, EU, and Japan combined, and is increasing its use of coal by >10% per year. As a consequence, China has 16 of the world’s 20 most polluted cities, and forces a third of all urban residents to breathe polluted air. China produces and uses nearly half the world’s cement; the production process accounts for 5% of world CO2 emissions and a fifth of China’s.

All across China, glaciers are shrinking, lakes are vanishing, and rivers are drying up. Water shortages are a major reason for falling grain production, which peaked in 1997. Already, some 60 million Chinese have difficulty getting enough water to meet their daily needs, and as much as 600-700 hundred million drink water contaminated with human and animal waste. The market response is bottled water, and discarded plastic bottles are everywhere. Chinese consumption of wood for domestic use and export is playing a central role in global deforestation. China now produces a third of the world’s garbage, and is having disposal problems; most of it goes untreated. The country’s recycling industry is virtually nonexistent.

China’s leaders are aware of these problems, but it is most likely that the Chinese will drag their feet, make token changes, and outsource their industrial pollution to the “next Chinas” (Vietnam, Burma, Indonesia, India), which have weaker labor laws and environmental protections.

 
Complexity and Contradiction
 
Gerth concludes that his central message is to examine “the complexity of the issues involved” and that China is “a land of staggering contradictions.” It is both very rich and very poor (with nearly half a billion citizens living on less than two dollars a day, while also the leading creditor nation for the US). It is also both black and green (the world’s worst carbon polluter and the biggest green energy producer of wind and solar power). The Chinese are aware of problems caused by consumerism, and have taken efforts to limit them. As China goes, so goes the world; but what happens in China is also deeply influenced by the actions of other countries, particularly the US.
 
NOTE: A fascinating look not only at consumerism run amok as a major driving force, but the absence of adequate regulation to check counterfeit goods, extreme markets, and environmental blowback. The provocative title of this very readable book is a bit overstated, but perhaps not by much.
 
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