World Retail Congress: China switches from the world’s factory to consumer superpower, but rise of middle class shopper is both an opportunity and a threat

Global retailers face seismic changes as China’s rising middle classes flex their new found spending power.
Spiraling wages will transform the country from the ‘world’s factory’ to the world’s biggest consumer market, delegates at the World Retail Congress in Paris heard today.
Dr William Fung, Chairman of Li & Fung Limited, said that China’s minimum wage is set to rise by 80% over the next five years.  This will create a new middle class of consumers who will drive retail sales increases of up to 15% a year – twice the rate of China’s projected GDP.
Dr Fung said, “China is a funny country, it seems to operate in 30-year cycles.  In the 30 years between 1979 and 2009, China ‘conquered the world’ by becoming the ‘world’s factory’.”
Since then, he said, China’s authorities had set about putting in place the country’s ‘second engine of growth’ – domestic consumption.  The scale and shopping power of the population could see China overtaking the US as the world’s largest consumer society within the next 30 years.
Coupled with India, another rising consumer powerhouse, it would create a new market of more than a billion shoppers in that period - disrupting today’s retail landscape.
Whilst this will provide a huge opportunity for retailers, it could also pose a serious threat.  Dr Fung said that for 30 years China’s low wage economy had kept consumer prices low and helped retailers enjoy healthy profit margins.  But as the second phase of China’s development kicks in and labour costs rise, retailers could see their margins squeezed.
Dr Ira Kalish, Deloitte’s Chief Global Economist, also sounded a note of caution.  He said that, while he agreed China’s rising middle class provided an opportunity, ‘foolhardy lending’ by China’s banks for apartment blocks and shopping complexes that still stand empty, could trigger a financial crisis.
While he said that the Chinese government would never allow a ‘Lehman’s-style crash’, it could lead to economic growth falling back to 3-3.5%, half its current rate. For further information please contact:
Source: Bell Pottinger   
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