China’s engineering prowess has been nothing short of extraordinary. From world-class infrastructure and eco-friendly cities to space systems and high-speed trains, China’s impressive accumulation of state-of-the-art physical capital has played a dominant role in driving its economy. But China’s physical engineering accomplishments on the supply side have not been transferable to social engineering efforts on the demand side, especially in stimulating consumer demand.
The disconnect arises out of the modern Chinese political system, which emphasizes stability and control. While this focus has enabled the country to become the world’s “ultimate producer,” it has not been successful in uncovering the DNA of the Chinese consumer. Social engineering through government diktat stands in sharp contrast to the incentive-based, free-wheeling, individualistic spirit that shapes human behavior and consumption patterns in the West. With the household consumption share of Chinese GDP remaining below 40%, compared to around 65% in advanced economies, China has little to show for its long-standing rhetoric on consumer-led rebalancing.
The American experience, as famously documented in John Kenneth Galbraith’s The Affluent Society, decodes the DNA of a consumer society. Key characteristics include upward mobility of income and wealth, open communication and dissemination of information, individualism and freedom of choice, diminished inequality of lifestyles, intergenerational wealth transfers, and, ultimately, the ability to elect political representatives. Western consumerism is very much an aspirational proposition.
That raises a fundamental question: Is China’s political system incompatible with modern consumer culture? That question seems all the more pertinent in the face of China’s newfound techno-authoritarianism, which seems at odds with the basic freedoms on which consumerism is based. Recent technological advances (especially in facial recognition and other forms of surveillance), in conjunction with a social-credit system and tightened censorship, are all but antithetical to the consumer society as we know it in the West.
Ultimately, it is far easier to mobilize the state’s machinery to exert influence over producers than it is to allow basic freedoms to empower consumers. That goes back to the early days of the People’s Republic, when China’s producers were under the strict control of the State Planning Commission. And it is true again today as the pendulum of Chinese economic power has swung back from the once-dynamic and entrepreneurial private sector toward state-owned enterprises.
The tightening of government controls over Chinese society over the past decade is especially at odds with its goal of spurring consumption. In 2013, shortly after taking office, President Xi Jinping introduced a “mass line” education campaign to address four “bad habits” – formalism, bureaucracy, hedonism, and extravagance – that he believed were key sources of social decay and corruption of the Communist Party of China. This effort, initially viewed as an offshoot of Xi’s signature anti-corruption campaign, has since taken on a life of its own.
Xi sharpened his focus on bad habits in 2021, when a regulatory crackdown on internet-platform companies targeted not only Chinese entrepreneurs like Alibaba’s Jack Ma but also the so-called lifestyle excesses associated with video games, online music, celebrity fan culture, and private tutoring. Such state-directed social engineering suggests that the Chinese authorities have little tolerance for the sense of possibility and optimism embedded in the DNA of Western consumer societies.
Another example of this mismatch between ambition and regulatory mindset can be found in China’s repeated attempts to address the demographic headwinds behind a shrinking labor force, which is set to decline through the end of this century, owing to the legacy of the now-abandoned one-child family-planning policy. The Chinese government recently announced measures to boost birth rates, including improved support for childbirth, expanded childcare capacity, and other efforts to build a “birth-friendly” society. Yet this is only the latest in a series of actions following the adoption of a two-child policy in 2015 and a three-child policy in 2021.
Despite these efforts, China’s fertility rate remains far below the replacement rate of 2.1 live births per child-bearing woman. Polling data point to two reasons: concerns over sharply rising child-rearing expenses and deeply entrenched small-family cultural norms. This latter point underscores the behavioral aspects of the problem – namely, that a generation of younger Chinese have grown accustomed to one-child families. This very human resistance to the government’s attempted coercion of family planning practices is not dissimilar to Beijing’s strategy to push for increased consumer demand.
The key to unlocking China’s consumer potential is to convert fear into confidence, a transition that requires nothing short of a fundamental shift in the mindset framing households’ decision-making. But this is precisely where the government has been stymied. Incentivizing human behavior is radically different from requiring state-directed banks to boost lending for infrastructure projects or state-owned enterprises to invest in property.
Admittedly, I am providing a Western perspective on a Chinese problem, and experience has taught me that such problems need to be examined from China’s own perspective. Even so, increasing consumption goes to the very essence of the human experience: Can there ever be a flourishing consumer culture with Chinese characteristics that contradicts the aspirational ethos underpinning Western societies?
The ultimate solution to China’s chronic underconsumption problem may well hinge on these deep considerations of human behavior. A recent meeting of China’s Central Economic Work Conference hinted at yet another big consumption stimulus to come. But if Chinese authorities remain steadfast in tightening control over social norms and the human spirit, then all the stimulus in the world – from trade-in campaigns to social-safety-net reforms – could be for naught.
Copyright: Project Syndicate, 2024.
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