China eyes becoming world's largest consumer economy
Focus on ‘internal circulation’ to ensure economic security amid global risks: experts
Published: Oct 28, 2020 07:36 PM Updated: Oct 28, 2020 10:41 PM

Tourists shop at a duty-free shopping mall in Sanya City, south China's Hainan Province, October 5. Hainan is witnessing a boom in duty-free sales during this National Day and Mid-Autumn Festival holiday. Photo: Xinhua

For decades, China pursued a mostly export- and investment-driven growth model that powered the once backward nation to become the world's biggest trading country and second-largest economy.

But in light of a fundamental structural shift in the economy and mounting external risks, that is about to change in the coming years, top economists said on Wednesday.

As members of the 19th Central Committee of the Communist Party of China (CPC) review proposals for the 14th Five-Year Plan (2021-25) and visions through 2035 at its ongoing fifth plenary session, they are likely to have focused on a strategy known as "dual circulation," under which China is seeking to drastically boost the domestic consumer market to ensure long-term sustainable growth free from foreign risks, ranging from COVID-19 to trade wars.

The fifth plenary session is set to conclude on Thursday, when an official statement about the meeting as well as the 14th Five-Year Plan is to be made.

The new five-year plan is expected to offer detailed clues and concrete steps as to how China can carry out its newly launched "dual circulation" strategy to drastically prop up the ever-growing domestic consumer market, and turn that into fresh impetus for sustained growth even as the global economy is set to shrink substantially, while continuing to consolidate the external market, experts noted.

Major shift

"Previously, [China's economy] focused on exports and investments... But if China will have to rely on internal demand to keep going forward, domestic consumption will become the most important factor. That is a major shift in direction," Zhang Yansheng, chief research fellow at the China Center for International Economic Exchanges, told the Global Times on Wednesday.

Behind that shift in strategy is a fundamental transformation in China's own economic structure, as well as what officials and experts call global changes unseen in a century. 

Since the reform and opening-up policies were adopted over four decades ago, China's economy has heavily relied on revenue from exports based on its massive manufacturing sector as well as investments in roads, railroads and other infrastructure. Up until 2006, exports still accounted for over 35 percent of China's GDP, but that proportion dropped to a little over 17 percent in 2019 - meaning about 83 percent of the GDP came from internal circulation, experts said.

While external factors may have played a role in that decline, the chief reason was the rapid rise of China's consumption power following decades of wealth accumulation. China's per capita GDP exceeded the $10,000 mark in 2019, the urbanization rate reached 60 percent, and the population of the middle-income group surpassed 400 million, data showed. In 2019, Chinese shoppers spent about 41.2 trillion yuan ($6.14 trillion) on consumer goods, contributing nearly 58 percent to China's GDP growth that year. Chinese consumers have also been credited for lifting tech behemonths in the US like Apple, and fashion powerhouses in Europe.

That massive market is what policymakers are counting on as a new source of confidence, and eventually a fresh steam for economic growth in the coming years and even decades, as the external environment continues to exacerbate due to the raging COVID-19 pandemic as well as an ever hostile, counterproductive US government, experts noted.

"When trade declines and exports drop, more and more Chinese products will be consumed and circulated internally," Lin Yifu, dean and professor at the Institute of New Structural Economics of Peking University and a vice chair of the expert advisory committee for the drafting of the 14th Five-Year Plan, said during an event on Wednesday.

"[The dual-circulation strategy] is conducive for us to grab this opportunity and move forward," Lin said, adding that the strategy is not only aimed at dealing with short-term challenges in export such as COVID-19, but is also in line with China's economic trends of transitioning to a high-quality, consumption-driven economy.

That domestic opportunity is expected to grow even more rapidly in the coming years, with a slew of supportive policy support expected in the 14th Five-Year Plan, experts noted.

"We have said that China had a chance to surpass the US as the world's largest consumer market, and the epidemic might lead China to inch closer to, and even slightly exceed, the US domestic market," He Maochun, a professor at the Institute of International Studies of Tsinghua University, told the Global Times on Wednesday, noting that sluggish production, epidemic impact, trade policies, and unemployment have seriously undermined US spending power.

Even before the pandemic, some had predicted that China's consumer market would overtake that of the US in 2020. New York-based research company eMarketer said in January that total retail sales in China could reach over $5 trillion, $100 billion more than the estimate for the US. Due to the COVID-19, China's total retail sales dropped by 7.2 percent in the first three quarters to over 27.3 trillion, but the US is expected to be hit harder by the still-raging epidemic.

Onling shopping

Policy support 

While the US is still mired in a series of crises - from persistent social unrest to a chaotic political environment that can hardly produce any concrete measures to fix the economic crisis, let alone draft long-term strategies - senior CPC officials are formulating the 14th Five-Year Plan to deal with both short-term and long-term issues, including boosting consumption, experts said.

The plan will likely focus on two main areas to prop up consumption: increasing household income and nurturing "new consumption" driven by new generation information technology, according to Pan Helin, executive director of the Digital Economy Research Institute at the Zhongnan University of Economics and Law. 

"Boosting consumption in these two areas would be sufficient and could be the key point in the 14th Five-Year Plan," Pan told the Global Times on Wednesday.

Specifically, China will accelerate reforms in the income distribution system and maintain steady and effective employment policies to ensure stable growth in disposable income, encourage and support innovation to produce new products and services, and further improve the consumer environment, said Zhao Ping, deputy head of the China Council for the Promotion of International Trade.

"In terms of consumption upgrade, there is also imbalance and insufficiency in some areas such as education, healthcare and sports," Zhao told the Global Times on Wednesday. He said that pushing forward the urbanization process and supporting the western regions will also be a key in boosting consumption.

Urbanization, in particular, could significantly expand China's consumer markets, given the huge rural population in the country, with tens of trillions of yuan in potential consumption power, according to some estimates. China is aiming to become a high-income society, a potential historic milestone, in the next decade or so.

Still, despite China's shift toward the massive domestic market, much focus will also be given to further expanding the external market through the China-proposed Belt and Road Initiative and other channels, and China will continue to be a leading growth driver for the global economy, experts noted.

With all the prospects, the Chinese economy still has the potential for 8 percent growth before 2030 and will continue to contribute 30 percent to global growth, under the new strategy, Lin Yifu said.