Chinese slowly buying in to consumer culture

Net Results: Unlikely as it seems to anyone from the West who grew up in the Cold War era and might still view China as a tentative convert to free-market philosophies, Beijing is only too happy to sell you something - anything - and has the shops to prove it.

And don't be foolish or naive enough to think this means only the tiny one-room shops that dot this enormous city's byways, each with an enormous sign mounted overhead and often a proprietor patiently sitting outside on a stool or just inside the doorway, awaiting custom.

Beijing is full of billboards advertising not just western goods like Nike, but luxury items - perfumes, furs, Rolex watches - and the two-floor shopping mall beneath the luxury Pacific Palace Hotel sports a panoply of chic boutiques, from Chanel and Emporio Armani, to Gucci and Hermès.

That said, not many seem to be buying the very top range goods. While upmarket shopping boulevards like Wangfujing Street heave with the under-30s masses - and in a city of over 13 million, "masses" is literally the case - I didn't see a single person make a purchase in the Palace mall's shops.

However, talk to economists and they'll tell you the crowded shopping streets around Beijing are misleading, a centre for social life but far less so for economic life.

While this massive country's economy has grown at rates that mirror Ireland's during the height of the Celtic Tiger - around nine to 10 per cent year after year as the country has carefully begun to privatise its industries and tentatively embrace capitalism - the Chinese themselves simply don't buy enough stuff.

The astonishing economic growth that has transformed the skylines of big cities like Shanghai and Beijing into a vista of high rises and statement architecture has been fuelled largely by exports, according to Chunseng Zhou, professor of economics at Guanghua School of Management, Beijing University.

"Domestic demand is a concern," he says. "The growth rate has been more than 25 per cent year on year for several years for fixed asset investment, but consumption growth is not as fast. It is still in double digits, but it is much slower than the investment rate, about 13 per cent last year." The consumption ratio, which reflects the relationship between the final consumption figure to gross domestic product, "is declining significantly", says Zhou.

"We cannot depend too much on foreign exchange exports. If you expand your product capacity but you cannot sell your goods to consumers, you cannot use that capacity, leading to layoffs" and a further drop in consumption levels. In other words, the Chinese need to start consuming goods themselves at a higher rate or continued growth and stability, even on a far more modest scale, will be difficult.

Many western foreign investment experts are advising China to boost consumption, and Zhou says he has spoken firmly to the government on such issues as well (his openness in talking publicly on these kind of subjects is itself a sign of how much China has changed in the past half decade).

But how to stimulate growth in an economy where the average salary is only about €80 per month and where large numbers of people live in conditions that by any consideration are appalling?

Scattered around Beijing's charming old hutong neighbourhoods, the alleyways of one-story brick buildings that the Chinese government is gradually bulldozing for high-rise apartments, are miserable tent dwellings and people sheltering in half-demolished hovels.

Even for the skilled electronics assembly worker that built it, buying a laptop would the take bulk of a year's earnings. The official line of the government is that continued economic growth will raise the standard of living for all, bringing more into the middle classes, a policy that Zhou calls "getting wealthy together".

Education and cultural trends are helping achieve that aim. Mary Ma, the chief financial officer for Chinese computing giant Lenovo, the purchaser last May of IBM's PC division, says: "The first priority of the Chinese family is the children's education, and in most families there is only one child." Parents will spend a small amount on food and a large amount on special classes for the child, and strive for a PC, she says.

Lenovo's surveys on its potential market four years ago revealed that the average family in wealthier big cities like Beijing and Shanghai has an income of about $400 (€333) monthly. If that is the average, note that 35 to 40 per cent will have a higher income, she says, and that is the market Lenovo targets. It turns out that about 35 per cent of those cities' residents now own a PC.

In a sign of the growing buying capability of Chinese consumers, Ma says that now what she calls "second-tier cities" are moving into that 35-40 per cent range too. All of which is promising and bodes well for the future, but China still badly needs more consumers.

An editorial in the English- language China Daily opined last week that perhaps Chinese were just more culturally restrained as buyers. After years of being encouraged by their government to be frugal and modest, maybe they will never want to shop til they drop, to buy Gap, Gucci or any Chinese equivalent.

Going by the exuberant street culture and lively shopping districts in Beijing, that seems a myopic view. Somehow though, those window shoppers need to start going home with full carrier bags, and soon.

As Zhou notes, the unwillingness to buy is a serious conundrum for the whole nation going forward.

Perhaps no issue better highlights the curious contradictions of this new China. How does a Communist government reconcile the need to create avid consumers with its socialist remit?

How does it achieve economic reform and a better life for its citizens with a wariness of full-on capitalism?

The choice is subtler than squaring off Mao and Mammon, but those idols symbolically underlie this most fascinating economic and cultural struggle.

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