Harold Sirkin ,  

Contributor

I cover business leadership in the fast-changing globalized world.

Opinions expressed by Forbes Contributors are their own.

 

Many of us are old enough to remember the photographs of the “Chinese masses” all dressed alike, in the style of Chairman Mao. Those days are gone.

China is rapidly on its way to becoming a modern consumer society. That’s good news for a multitude of reasons.

Consider this line from a recent news report: “Steinway, one of the world’s most prestigious musical instrument brands, is looking to China to breathe new life into lackluster sales.” Those were the words of The New York Times this summer, reporting on China’s growing appetite for brand-name luxury goods.

This appetite is increasing even in the face of an economic slowdown. But China’s “slowdown,” of course, is not the same as the U.S. or European slowdown. China’s economy, even operating on cruise control, still grew at a healthy 6.9% annual rate last year, according to the World Bank. This was nearly three times the U.S. economic growth rate. If U.S. GDP was expanding at 6.9%, we would be using such terms as “torrid” and “unsustainable”; alarm bells would be going off.

As Jeff Walters and Youchi Kuo, colleagues of mine in our Hong Kong office, have explained, consumer spending in China “is … on a staggering trajectory.” Even if China’s annual GDP growth rate cools to 5.5%, they’ve calculated that the projected increase in consumer spending over the next five years would be in the $2 trillion range, or more – the equivalent of creating a new consumer market some 30% larger than Germany’s or the U.K.’s.

 

Overall, consumer goods sales in China exceeded 30 trillion yuan last year – or about. $4.6 trillion – Commerce Minister Gao Hucheng has said. This was a year-to-year increase of more than 10% over 2014.

Reliable estimates, including Walters’ and Kuo’s, see total consumer spending climbing to some $6.5 trillion or so by 2020.

While luxury goods sales reportedly ticked down slightly last year, the long-term outlook is strong, with the number of upper middle-income and wealthy households expected to reach the 100 million mark in less than five years.

So while there are good reasons for manufacturers to return certain factory jobs to the United States, there also are good reasons for manufacturers to ramp up production in and around China. (I say around, of course, because it’s becoming more economical to make certain products elsewhere in Asia, even for the Chinese market.)

The increase in Chinese consumerism is not only a welcome development for international consumer goods manufacturers, but also for China’s leaders, as they try to retool the economy from its heavy reliance on exports, which accounted for 22.4% of GDP last year, according to the World Bank. U.S. exports accounted for 12.6% of GDP.

Chinese consumerism is not just a function of the increase in personal and family wealth in China. It also represents an important attitude change. Today’s Chinese consumers want contemporary fashions, the latest electronic gizmos, furniture and appliances, automobiles, leisure goods. As noted here, we’re dealing with “a new generation of freer-spending, sophisticated consumers.” Chairman Mao probably would be horrified.

We’re also seeing a virtual explosion of e-commerce in China. China now boasts an estimated 410 million online shoppers. This will continue to grow. By 2020, the online consumer market is expected to reach some $1.6 trillion annually. That’s larger than the current GDPs of all but a handful of countries. China’s e-commerce giants, Taobao, TMall, Alibaba and Amazon China among them, must be salivating.

The changing face of Chinese consumerism creates both tremendous opportunities and new challenges for Chinese and western companies alike. One of the potential advantages western companies have is that younger Chinese consumers are among the world’s most brand-conscious. And in the luxury goods space, at the very least, western companies like Steinway, Porsche, Rolex, Ralph Lauren, Tiffany & Co. and Louis Vuitton are among the most desirable brands in the world.

Like everything else in China, the development of a consumer society is a work in progress. The system is still fragile. Much can go wrong. But it appears the genie is out of the bottle. And as the saying goes, once the genie is out of the bottle, he’s not likely to go back in.

http://www.forbes.com/sites/lizryan/2016/09/17/six-months-no-interviews-until-i-started-breaking-the-rules/#46c82fee3a30