Big events obscure little events, especially when the media gets hold of them.
To borrow a military analogy, little events creep under the radar, undetected, rather like stealth aircraft (ominously China has its own now), and may have a big or a small impact, depending upon their purpose and outcome.
It was to be expected that the big newsworthy event in November drowning out all other China-Europe related news was the confirmation of China’s new leadership for the next 10 years at the 18th Party Congress in a locked-down Beijing. (With all due respects to the re-election of President Obama a few days before, his second term will only last another four years, though his ‘Asian-pivot’ decisions will be crucial in determining the West’s relationship with the region for many years to come. This is the Asian Century, no less).
Notwithstanding any Black Swan outliers – who knows how many of these rare events are already nesting or taking wing to spoil the Party – China’s two principal leaders will, theoretically, occupy their posts for the next decade. Even before the 18th Party Congress prize draw for leader and deputy of the Chinese Communist Party, we already knew the names of the lucky ‘Princelings’ holding the winning lottery tickets. The outcome was preordained and of course they won: Xi Jinping was anointed General Party Secretary with the dual role of state President. Li Keqiang was appointed his second-in-command and China’s Prime Minister.
That’s the big picture: it obscured the small but tantalising China-Europe stories in mid-November. I think they deserve a second airing. So here’s my summary and personal musings on those few which went under the radar and may have escaped your attention:
China’s ‘affluent’ population rising to 280 million by 2020
As if to support of China’s attempts at rebalancing economic growth in favour of consumption at the expense of capital infrastructure and property investment, the Boston Consulting Group (BCG) forecasts a doubling in China’s affluent consumers within the next eight years. The ‘affluent’ demographic has a disposable income of between $20,000 to $1 million (quite a large differential, I think, surely there is more to do on a demographic slicing and dicing). On current BCG forecasts, these affluents will propel 40% of China’s consumption growth.
Good news for foreign brands, one might reasonably assume. Not quite, I think.
This rather broad healthily wealthy cohort will be scattered across China, mostly in smaller, lower-tier cities, which many Western brands have yet to penetrate. It will cost them to do so.
Brands will need to invest in logistics and distribution, mix traditional and new sales channels, while competing against aggressive and fast-learning Chinese competitors, some of whom they will need to make allies in joint ventures to leverage local knowledge, sales channels, and provincial political know-how.
Many western brands – whether in the food, fashion, consumer electronics or luxury categories – will be confronted by a double-bind: rising costs, to serve a bigger geographic hinterland chasing the ‘affluents’ across the country, and a competitive squeeze on gross margins brought about by canny Chinese competitors producing higher value, lower priced products.
Still, 280 million affluent consumers are not to be sneezed at, unless you want to be left out in the cold.
China’s disaffected consumer class – rich isn’t so glorious if you feel it’s beyond reach
While BCG’s numbers have us Westerners salivating at the prospect of future value in China, many of those self-same consumers – or those potentially joining the affluent cohort – aren’t happy: to get rich is not so glorious. It is felt acutely by the urban white collar worker competing for promotion and recognition in the corporate rat race.
This feeling was colourfully articulated by a reasonably affluent, 29 year-old female civil servant named Rebecca Jiang working in Beijing:
“Sometimes I feel like I am driving down an expressway, speeding from one place to another, but I forgot the reason and I do not know the final destination.”
Most of us working in the West relate to that feeling of pressure and stress, Ms. Jiang. It’s the hamster effect, running ever faster just to stay upright and keep one’s balance to avoid falling over. I remember viewing a Hollywood movie many years ago with the title Falling Down – about an ordinary white collar worker whose mind flips on losing his job and the injustice he feels as a result, turning his anger and angst violently against his local community.
Not that unemployment is yet a problem in China’s tight labour market. The point is that people pushed to the limit, even white collar workers, can give vent to their frustrations in unpredictable ways. The source of stress for China’s new middle class is making enough money to maintain stability and advance status, what sociologists have imaginatively called ‘affluenza’ : work overload, debt, status anxiety (although in my day it was simply labelled ‘keeping up with the Joneses’).
As China’s middle class strive for self-improvement and more affluent lifestyles helping to drive the country’s rapid transition to a consumption economy, it should not be unexpected that they feel consumerism’s pathological side-effects bearing down hard on their psychological and emotional lives. Indeed, a longitudinal analysis by an American professor has found that overall life satisfaction in China has declined as the country’s economy has expanded: “If anything, they are less satisfied than in 1990”.
Adding to their financial insecurity and status anxiety is concern about inflation eroding earnings and savings as well as a gnawing animosity toward a system that seems ever less meritocratic and increasingly more corrupt. Inequality of opportunity and the widening wealth gap – the disparity between China’s rich and poor – were shown by the Pew Research Center’s recent global attitudes survey to worry 80 percent of its 3,000 plus Chinese respondents. That survey (another one that slipped beneath the radar when attention was focused on the U.S. Presidential election and Party Congress) makes for compelling reading, a snapshot of the hopes and fears of today’s ordinary Chinese citizen.
It is also uncomfortable reading. For while similar pressures and concerns keep many Western citizens awake at night, at least they have recourse to the ballot box and a relatively free press to register their disaffection. Such safety valves aren’t available to the Chinese citizen who increasingly feels let down by the system, or those who may feel they’re falling down under it.
U.K’s injurious visa rules
Not long after I had posted a diatribe about the U.K’s nonsensical visa restrictions on Chinese tourists and students, Britain’s former Foreign Minister David Miliband criticised the government’s border policy deterring international higher education students as “boneheaded”.
“What I feel passionately about,” Mr. Miliband said, “is the overall policy of restricting visas for students, curtailing the rights of students to work after they complete university, and the economic, social and educational cost to the country.”
It is gratifying to see a senior and well-respected U.K. politician, noted for his sharp, cerebral approach to policy issues, wading into the debate with passionate intensity. Not one to mince his words, he added: “Britain is handing students over to American, Australian, even German universities at a cost to our own society as well as our own educational institutions.”
Is it any wonder that Chinese students are applying to U.S. colleges and universities in ever-expanding numbers when the door to British HE institutions seem to be slamming shut on them?
It is equally gratifying to know that Mr. Miliband too has caught sight of a dilatory Buridan ass in Westminster. But for as long as the ass stays there U.K. universities will forego the opportunity to earn much-needed fees and Britain’s employers will lose out on adding talented graduates to their workforce.
China Europe International Business School loses an academic star
While on the subject of higher education, it was with a tinge of regret that I read of Professor John Quelch’s departure from China Europe International Business School (CEIBS) in Shanghai, one of China’s best MBA schools.
Professor Quelch is a well-known authority and thought-leader in the disciplines of international marketing and brand management. His appointment less than two years ago as Dean of CEIBS augured a promising future for these two disciplines by elevating their importance and relevance to Chinese businesses, whether state-run or private sector.
There is no need to cite the innumerable sources and first-hand observations which highlight the shortage of, and dire need for, top quality marketers and brand managers in Chinese companies.
If China truly wants to rebalance its economy by increasing the GDP contribution of consumption (while lowering its dependence on investment) and simultaneously develop globally competitive brands, then it must expand the cohort of quality, talented professional marketers and brand managers in its domestic market.
To lose such a prestigious champion of marketing and branding after a short tenure at CEIBS feels retrogressive. However, Professor Quelch has put in place a strong faculty of international academics and it is to be hoped that his legacy grows stronger, for CEIBS’ and China’s sake. CEMS 360 wishes Professor Quelch well on his return to Harvard.