China's shoppers spend big
By CNN Correspondent Phil O'Sullivan
GUANGZHOU, China (CNN) -- The young people clapping outside clothing stores on a pedestrian mall in one of China's wealthiest cities are all about attracting more customers.
But judging by the throng of buyers in Guangzhou's shopping malls sorting their way through piles of garments, that clapping could just as easily be applause for China's free-spending consumers.
Retail sales in China are expected to grow by 11 percent this quarter. Even with help from U.S. President George W. Bush's tax cuts, American consumers will be lucky to achieve even half that increase.
China is in the midst of a consumer spending boom, the effects of which will be felt right around the world.
During a lunch hour in the southern provincial capital of Guangzhou, there is no shortage of potential buyers.
"The economy is getting better and everyone's income is going up," says one young woman laden down with shopping bags.
"It means we now expect to get more things."
In the world's most populous nation, retail spending numbers are big and getting bigger.
A huge poster of basketballer Yao Ming exhorts everyone to buy a new brand of mobile phone, and buy them they do. This year 52 million new handsets are expected to sell in China. That's on top of the 269 million already in use. That's easily more than any other country in the world.
Car sales are expected to increase by 30 percent this year.
At a downtown Guangzhou car yard, sales are up 40 percent and the yard manager, Liang Guangjie, says there is no sign of a slowdown.
"There will come a time when supply will eventually exceed demand," he says.
"But China has a large population and there is plenty of growth potential so I don't think this will happen in the short term."
Rising incomes
The reason Chinese consumers are on such a spending frenzy has much to do with rising incomes. People who live in China's cities have seen their incomes rise by an average 14 percent a year since liberalization began in 1978.
More and more people are also joining the workforce. China's economic boom saw an estimated 10 million new jobs added last year.
Admittedly many of China's spending numbers are coming off a low base. In the cities where so much of the spending is done, people have only around $1,000 of disposable income a year. That compares to $26,000 a year for their U.S. counterparts.
Poorer Chinese consumers carry huge pricing power through sheer weight of numbers. While their wages are low by Western standards, they can demand and receive lower prices.
Manufacturers make their products cheaper to appeal to China's huge number of rural poor, betting that enough sales will offset the cheaper price. But then the price will be so cheap that overseas consumers will also want some of the action.
Just as they've done for whitegoods and electronics, it's expected these poorer Chinese consumers will soon be lowering car prices at a sales yard near you.
Morgan Stanley economist Andy Xie says it's just a matter of time before Chinese buyers put downward pressure on international car prices.
It's a long way from the days when the majority of Chinese bought their goods in officially sanctioned, government run cooperatives.
The goods may still be cheap and locally made, but perhaps more than ever before, China's consumers have money to spend.
