Chinese Consumers Helped Pull American Companies through the Recession

A new breed of enthusiastic Chinese consumers helped to pull many U. S. companies through the global recession.

While older Chinese still save almost 50 percent of their incomes, younger generations are “shopaholics” and save next to zero. Salaries for young Chinese aged between 20 and 30 almost tripled in less than a decade. The number of credit cards exploded in China, from 13 million in 2005 to more than 115 million in 2009.

A typical young middle class Chinese drives a Buick, talks on an iPhone, eats in MacDonald’s, and wears Nikes.

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Chinese Consumers Have a New Wish List

When the Communists took over China in 1949, some of the most highly sought luxuries were a sewing machine, a wristwatch and a bicycle.

Now, 60 years later, urban Chinese people have a very different wish list, which includes big ticket items – cars, houses and traveling for vacation. Alison Klayman reports from Beijing, September 29, 2009.

Unlocking the power of Chinese consumers

An interview with Stephen Roach by Clay Chandler, the McKinsey publishing group’s Asia editor in Hong Kong.

In China’s rush to join the global economy, the country stoked exports and government-led investment but neglected to build social and economic institutions needed to encourage consumers at home. Stephen Roach, Morgan Stanley Asia’s chairman, says its time for the world’s fastest-growing economy to find a “back-up plan.”

Myth of China’s Manufacturing Prowess

People often compare China’s urbanization to Western industrialization in the 19th century. In both cases, a large population moved from the country to the city. Society advanced from agricultural to industrial via manufacturing on a massive scale.

However, there is a key misconception about China’s manufacturing prowess.

In the United States and Europe, the manufacturing industry was created due to technology innovation. For example, railways came into existence because of the invention of the steam engine and automobiles were created because of technology breakthroughs in automobile engines.

In China, the manufacturing industry is being created in response to global demand. Chinese manufacturers take orders from Western companies that have designed products for their home markets. They have no involvement with product development, innovation, market research, and even packaging. Chinese manufacturers have no experience in bringing their own products to overseas markets.

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China’s Problematic Education System

Since the mid-1990s, China has gone through major reforms in its education system. New campuses were built on a large scale, and many colleges were upgraded and merged with universities. College enrollments expanded dramatically. In 2009, about 23 million students were enrolled in China’s colleges and universities, compared to merely 6.4 million in 1998.

However, the quality of the education has deteriorated. Many professors spent the bulk of their time making money – charging steep consulting fees to businesses or for private tutoring. Lian Fang, a professor at Zhejiang Art Institute, told me that he charged 100,000 yuan ($15,000) to design packages and advertisements for a company that sold cookies and fruit juice products. Professor Lian’s salary was about 7,000 yuan ($1,030) a month. His wife, a music teacher, also made a handsome income by giving private piano lessons. As Harvard mathematician Yau Shing-tung noted, despite the increased levels of funding and much-improved facilities in China’s higher education institutions, the standards of research and quality of education in China have continued to deteriorate. Continue reading