Chinese retail spend is now as high as America’s
The mighty force of consumerism has taken hold in China. In 2018, retail sales there are expected to equal or surpass sales in the United States for the first time, another definitive marker in China’s rise to economic superpower status.
The growth of China’s domestic retail market is luring everyone from carmakers to makeup companies that want to cash in on the country’s growing middle class, but it also serves as another complication in US President Donald Trump’s quest to transform USChina trade.
Retail sales in China are on track to hit just over US$5.8 trillion (NZ$8t) this year, according to Mizuho, a Japanese bank.
It’s a stunning rise from a decade ago, when retail sales in China were a quarter of those in the US.
China’s rapidly growing middle class has been eager to buy brandname clothes, cars and cellphones, among other products. Shanghai is now referred to in fashion circles as ‘‘Paris of the East’’.
These spending habits have been supported by fatter pay packets, with China’s income per
CHINA:
capita jumping from about US$2000 a year a decade ago to more than US$8000 (NZ$11,000) a year now.
‘‘China’s best bargaining chip is its massive and fast-growing domestic market,’’ said Jianguang Shen, chief China economist for Mizuho, who pointed out the retail trend in a recent presentation in Washington, DC.
‘‘This will change the balance [of power] tremendously, as it is the first time when the US is dealing with a market of equal size in a potential trade war.’’
On the campaign trail, Trump railed against China as the ‘‘economic enemy’’ of the American people. He harped on the fact that the US buys far more than it sells to China. The US ran a US$310 billion trade deficit with China in 2016.
But Trump has softened his tone lately, especially after he visited China in November, and the countries have jointly faced escalating nuclear tensions with North Korea.
Steve Bannon, Trump’s former chief strategist, was one of the harshest critics of China in the White House. ‘‘To me, the economic war with China is everything,’’ Bannon said in mid-2017. His excommunication from the Trump fold might also reduce the urgency in the White House to go after China.
Still, the two nations continue to dance around each other in a quest for global and economic dominance. Both continue to look for leverage over the other.
On Thursday, a Bloomberg story suggesting the Chinese government might halt its purchases of US Treasury bonds was enough to temporarily spook US markets, sending stocks sliding in early trading. China is the largest foreign holder of US Treasury bonds.
There are also more playful jabs between the countries. A mall in northern China put up a giant dog balloon that bears a striking resemblance to Trump.
If Trump really wanted to go after China on trade, ‘‘we will need leverage and we will need allies’’, said Olin Wethington, who served as a special envoy to China in 2005 and as an economic adviser to President George H W Bush. Wethington’s name has surfaced for a possible role in Trump’s State Department.
Wethington said he personally preferred bringing trade cases against China over the blanket tariffs Trump talked about on the campaign trail, which many warn would spark a trade war that could harm the US economy and the stockmarket’s rapid climb.
While Trump wants to show his blue-collar base he is being tough on trade, big businesses don’t want to see any dramatic actions. More than 20 per cent of sales at companies like General Motors, Boeing and Apple now came from China, Shen said. Any restrictions on Chinese access to the US would likely be met with barriers to American companies selling in China.
‘‘China is one of the most important markets for many US multinational companies,’’ Shen said. ‘‘This should lend China immense bargaining power.’’
A record 17.6 million vehicles were sold in the US in 2016, for example, but that was far below the 24 million passenger cars sold in China. US carmakers account for about one out of every five cars sold in China, even though the communist government placed a 10 per cent tax on luxury cars and trucks imported from the US.
But MIT economist David Autor, an authority on trade and automation, thinks the US still has substantial leverage in any debate with Chinese President Xi Jinping.
‘‘China exports a substantial piece of its GDP to the United States. They are very dependent on our markets,’’ Autor said. The US currently buys 19 per cent of China’s total exports.
One area where there is a lot of agreement across the political spectrum is to go after China’s theft of US intellectual property. It’s an increasingly important area as the race for global dominance in robotics, biotech and new energy takes off.
Trump has been mulling whether to take action, although he has largely been focused on Chinese steel and aluminum.
He has pointed to the tariffs President Ronald Reagan put on Japanese semiconductors in the 1980s as a model he wants to emulate, but the difference is that the US economy was far larger than Japan’s at the time.
Now the US faces an economic equal.
As Trump deliberates what to do, Autor said the president had already handed China a great victory on trade.
‘‘Trump did China the biggest favour of the last 10 years by tearing up TPP (the Trans-Pacific Partnership),’’ he said, calling it the best gift to China since the communist country joined the World Trade Organisation in 2001.
‘‘If you want to look for an inflection point in rate of US global decline, we’ll probably be able to point to tearing up TPP.’’
– Washington Post