Changing China

Giant on the move

Supply Push?

August 27, 2009

This is almost certainly not what Chinese policy makers had in mind when they started encouraging exporters to explore the domestic market to help make up for a drop in Western demand: sex toy makers opening flagship stores in Beijing.

But as an article and a video by my colleagues Ben Blanchard and Kitty Bu explore, that is just one of the side-effects the global slowdown is having on the world’s most populous country.

With factory owners looking to tap the local market to soak up excess capacity now that the export market is less reliable, many are setting up their own local brand names and retail outlets.

In the case of many products, like clothing and electronics, that does not necessarily portend any significant change in habits or lifestyle.

But in other areas, companies’ efforts to build up demand for their goods in the home market will themselves increasingly serve to shape tastes and lifestyles.

It’s not just firms like Sweet Secrets, which says it holds the country’s first registered trademark for a sex toy company.

An array of products previously sent straight overseas has been popping up on shelves in many of Beijing’s markets over the past several months, exposing especially young shoppers to a new set of possibilities.

Think specialist cooking utensils, versus the limited selection of mostly cheap spatulas and ladles on offer at most Chinese supermarkets.

By helping stoke desire for such products and fostering more of a consumer mindset, those firms are helping bit by bit to turn China into the driver of growth that governments and companies around the world hope it can become — relying more on domestic consumption and less on exports and investment.

But that aim is fraught with problems, as Chinese people continue to save a large chunk of their incomes in case of an illness in the family, for their retirement and for educational expenses.

Short of major reforms to the health care, social welfare and educational systems to reduce the need for such savings (some of which are already in the works), many experts say Beijing’s policy makers will have a hard time getting consumers to spend significantly more.

That, in turn, will make it more difficult to rebalance not just China’s economy, but the world’s. (See a recent post from economist Michael Pettis on the Asian savings glut hypothesis here.)

That is, while companies like Sweet Secrets might be doing their part, they will need significantly more help on the policy front if China is to become the consumer powerhouse many think it can be.

Photo credit: Top: Chen Xiangru, the founder of sex toy company Sweet Secrets, speaks to her sales staff about the uses of sex toys at her shop in Beijing August 18, 2009. REUTERS/David Gray  Bottom: A general view of a container port in Shanghai August 11, 2009. REUTERS/Aly Song

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