Monday, August 1, 2011

China Moves Towards Consumer-Driven Economy

by Tom McGregor
Mon, Aug 1, 2011

In the past three decades, China has transformed itself into the "factory of the world" by emphasizing a strong focus on exports, manufacturing and personal savings. The strategy has been effective since the country has enjoyed double-digit growth for a number of years. Yet, this fast engine of development no longer appears sustainable, because an economic rise inevitably brings along an increase in labor costs, wages and higher rates of inflation.

Nevertheless, China should not fear a drop in exports and factory output with a concurrent rise in labor wages and costs. A change in economic conditions may bring losses for some, but opportunities for others. There are good reasons for Beijing to shift its priorities from exports to domestic sales.

When China began its market-oriented reforms in the late 1970s, then leader Deng Xiaoping encouraged citizens to seek more wealth. Although many Chinese later became rich while the standard of living improved substantially for everyone, much deeper class divisions emerged as sweatshop factories became part of the economic landscape.

China's bestselling point in exporting its goods was simple: "We sell our goods en masse cheaper and faster than anywhere else in the world." For a period of time, this motto held true. But in recent years, Southeast Asian nations have been following China's economic growth model, and now it's cheaper to manufacture goods in Vietnam, Thailand, Cambodia and other neighboring countries.

No comments: