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Optimistic Chinese consumers fuel retail sales and the rest of the world

According to the Handbook of Chinese Horoscopes, the optimism of the Monkey year overlaps the year of the Rooster, which started on January 28. In economic terms favorable winds during this new Chinese year will come from the new consumer society which is quickly evolving. With retail sales growing at almost twice the rate of GDP, China´s difficult transition into a consumer society is making visible progress.

The circumstances are certainly challenging. World trade is slowing down. With the new administration in Washington, globalism – important for China´s exports – is facing headwinds. And China has accumulated severe overcapacities in quite a number of industries. Reducing them will limit the growth potential. Without question, the country´s economy is slowing down. At 6.7 percent, its GDP growth rate in 2016 was the worst in 26 years, according to the National Bureau of Statistics.

But there is a very positive flipside to this deceleration. Private consumption in the People´s Republic – which is in the process of displacing fixed asset investment and exports as the country´s growth driver – is getting into even higher gear. The Chinese just don´t care too much about the problems somewhere else in the world and stay optimistic.

The proof is overwhelming. Retail sales increased by 10.4 percent last year, almost twice the rate of growth for GDP. Online retail sales grew much faster. E-commerce expanded more than 26 percent, four times as fast as the overall economy.

Shopping girls

The reasons for this dynamic consumption are obvious and well reported. Consumerism is spreading out to rural regions. Retail sales in China´s inner provinces grew 10.9 percent last year, slightly faster than in urban areas. Thanks to these rapid growth rates in retail, consumption now contributes 64.6 percent to China´s economic expansion. This year, the ratio will rise even further to 70 percent, according to a forecast by the China General Chamber of Commerce.

The 1.3 billion Chinese are not only optimistic, they are increasingly moving the rest of the world economy forward – with added demand, with escalating foreign direct investments, with the new Silk Road and – finally – by setting the pace for global e-commerce.

According to the International Monetary Fund, China contributed 39 percent to world economic output growth last year. This represents a rise of 14.2 percentage points compared to 2015. One of China´s most visible contributions to the world economy comes from the rapid expansion of the new Silk Road. Its rail lines are already extending into 20 European inland and port cities, among them Hamburg and Duisburg in Germany.

China´s trade along the “One Belt and One Road”, connecting partner countries west of Shanghai and China´s most important trade conglomerates with the heart and coast of Western Europe, accounted for 25.7 percent of China´s total foreign trade in the first 11 months of 2016. According to the National Development and Reform Commission, more than 160,000 jobs along this transcontinental Eurasian corridor were created during that time.

Another important and very critical booster for China´s economic performance is the rapid growth of e-commerce, especially mobile sales. Sales via mobile devices grew by 51.4 percent last year, making up 61 percent of all e-commerce. And they are expected to grow another 45 percent in the year of the Rooster.

Western brands are rushing onto online platforms like Alibaba´s Tmall and WeChat in order to reach Chinese consumers by the hundreds of millions in the largest e-commerce market on the planet. This market is rapidly expanding cross-border shopping for Chinese consumers, “providing goldmine opportunities for international brands to enter China for years to come”, as Frank Zhang, the vice president of Greater China for SAP Hybris, recently put it.

Two out of three Chinese consumers have stated that they shop online via mobile at least once a month, according to a 2016 retail survey. Within 5 years 200 million Chinese consumers are expected to be shopping online across borders.

China Daily newspaper reports that on Black Friday, the US shopping spree that starts after Thanksgiving, sales initiated by Chinese consumers doubled compared to 2015. No wonder, e-commerce giant Alibaba has agreed to sponsor the next six Olympic Games in a deal worth an estimated 600 million dollars.

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