As a share of China’s overall economy, domestic consumption has been on a declining trend for the past few years. At the same time, the country’s outbound tourists are increasingly spending more overseas.
Last year, Chinese shoppers spent Rmb300 billion ($47.5 billion) on goods in overseas markets through China UnionPay, China’s national debit card system. That was a 66.7% jump from the Rmb180 billion spent in 2010, according to Su Ning, chairman of UnionPay.
Su, who is a member of the Chinese People’s Political Consultative Conference, said at the National People’s Congress that Chinese shoppers spent more than ever on overseas purchases in 2011, based on UnionPay records.
If cash payments are taken into account — many Chinese consumers’ preferred payment method — the figure is even higher. According to China’s tourism board, 70 million Chinese took overseas holidays in 2011, spending a total of $69 billion, up by 25% year-on-year.
The agency predicted that 78.4 million tourists will travel overseas in 2012, spending up to $80 billion, which would represent a 12% rise in tourist numbers and a 16% increase in spending. It didn’t give details about which items Chinese tourists are spending their money on.
The consumption story at home is not as exciting. The Chinese government is striving to rebalance the economy away from investment-driven growth and more towards domestic demand. Premier Wen Jiaobao has described this transition as the “most pressing task at present”.
“The share of domestic consumption in China’s GDP fell to 34% in 2011 from 38% in 2008,” said Banny Lam, an economist at CCB International. “China has to improve domestic consumption to make the economy sustainable. In Hong Kong, consumption accounts for 60% of GDP, while in the US that proportion goes up to 75%.”
Although officials in Beijing are promising to stoke domestic demand, local governments have little incentive to follow through on that, because investment remains the most effective way to boost GDP growth. As a result, the country has seen a boom in the number of shopping malls, but without a matching increase in shopping.
Su pledged that the government should charge lower import tariffs on goods, especially luxury products, so people so people can get their retail fix at home instead of abroad.
Indeed, import tariffs and taxes mean that many made-in-China products are more expensive to buy in China. Chinese shoppers’ preferred brands, such as Apple and Coach, are often made or assembled in China, but are sold much more cheaply in the US.
China is definitely not short of extravagant spenders. The number of high-net-worth individuals is growing rapidly and the personal wealth of China’s rich is catching up with their counterparts in the US. And the mindset that wealth is only validated through the ostentatious display of luxury goods will certainly support continued consumption.
For many years, the Chinese government has been encouraging its people to spend more, but now it seems that it needs to clarify where they should spend.