Citizens and Consumers, Good News for the World

If China pushes for internal consumption, repercussions will be extended to the entire world. The Dragon’s trade surplus has been already dwarfed from 8% (as percentage of Gdp) in 2008. This current year, forecast is between 2 and 3%. And the last 2 months saw an unusual trade deficit.

China is known to be the biggest world exporter, but at the same time it holds the 2nd position as importer, after the Usa and before Germany. Apparently, the Chinese model is under reconsideration. The successful chain investment-production-export is losing weight in favour of a more balanced target: a domestic-led growth. Internal demand will be underpinned by consumption and import.

Chinese society seems mature for it. Wages and salaries are on the rise (so is the purchasing power); the renminbi is consistently appreciating against the major currencies (+26% vs the US$ since the limited fluctuation was introduced in 2005) and import prices are cheaper; population’s primary needs are basically satisfied. It is an epoch-making period because Chinese are now both citizens and consumers.

The middle-class is more optimist about the future, saving as a precaution for future needs is less stringent since welfare state will be gradually rebuilt. Thus, there is more room and comfort for imports. Expectations must be prudent, though. If one looks carefully at the import breakdown, discovers that China buys mailnly what it “needs”, i.e. raw materials and technology. Both are essential to keep its role as factory of the world.

Only time will tell how quick the change will be. The European Union has an historical trade deficit with China, whose product invaded the Old Continent’s production sites, supermarket, houses. Export still lags behind, with Germany as noteworthy exception. The country exports innovation and technology, exactly what China needs: capital goods, parts, components, vehicles, high-tech mechanics.

The other Euroepan countries cannot imitate Germany; their hope lays in bigger imports from Beijing. A larger income to spend, the reduction of custom duties will be crucial to this, as well as the acquisition of European companies by Chinese investors. In this case, China has only to bring back home the quality its demanding consumers want.