Since last year, “consumption downgrading” has become a catchphrase. Especially when people talk about what they presume is a weakening in domestic demand. They readily point to the fast rise of Pinduoduo, an e-commerce platform for low-price goods, as well as an increase in the sales of pickles and cheap liquor as evidence that Chinese consumers are being more cautious with their money.
Which could be true, the total retail sales of consumer goods grew at 9 percent in 2018, compared with 10.2 percent in 2017. But to infer from this that domestic consumption is taking a nose-dive in China is to fail to see the forest for the trees.
The debate over China’s consumption tends to be between those who view the glass as half empty and those who view it as half full.
Which is why Ning Jizhe, deputy head of the National Development and Reform Commission, the country’s top economic planner, went to great lengths to present a true and comprehensive picture of China’s domestic consumption.
Despite a slower growth pace, consumer spending still contributed 76.2 percent to China’s GDP growth last year, making it the largest booster to growth for six consecutive years, Ning said at a news conference on Wednesday.
And the total consumption volume — at more than $8 trillion — is still remarkable.
To dispel any pessimism, Ning also listed a range of measures the government is taking to boost consumer confidence, such as reducing the tax burden, which has already benefited the country’s 80 million taxpayers. More measures are on the way to boost consumption in the vast rural areas, by helping residents there to get access to e-commerce and high-quality products.
And, despite the setbacks it is facing, China has immense untapped potential. For example, it is estimated 1 billion Chinese people have never traveled by air. If only a small proportion of them could afford a trip by air, China would easily surpass the United States as the world’s largest air travel market.
Actually, consumption downgrading could be a pseudo proposition. Take Pinduoduo for instance, rather than indicating consumption downgrading it might reflect the opposite. Since the majority of its users are in China’s smaller cities, its rise could indicate these people are actually spending more after finally being included in China’s online shopping population.
Given the trade frictions between China and the US, as well as a lower growth target set by Beijing which has been focusing less on the scale of growth in favor of sustainability, it is important to remain coolheaded when assessing China’s overall economic prospects.
Like China’s economy which is transitioning from quantity to quality, the mindset of Chinese consumers is evolving from price-sensitive to value-sensitive.