Tuesday, Dec. 03, 2002

Great Mall of China

By MICHAEL SCHUMAN

For centuries, foreign traders have salivated at the prospect of opening up the fabled China market. With a population that now stands at 1.3 billion people, it is the world's largest untapped source of demand for consumer goods, from textiles to televisions and computers to cars. But for the most part, China has been the Holy Grail of global business. Chinese peasants just didn't have the cash, and Chinese governments were too wary of foreign business, to turn the dream into a reality.

But 2003 looks to be the year that the Chinese consumer finally starts driving the Asian region — and stimulating the whole global economy. China may be in the middle of considerable political upheaval, but the economy keeps chugging. Chinese per capita income increased 25% in just four years, to $890 in 2001. Tan Kong-Yam, senior economist with the World Bank in Beijing, estimates that about 60 million Chinese people now live in households with annual incomes of $12,000 — giving them tremendous purchasing power — and that this group will increase to 150 million over the next decade. The result: the Chinese are buying more than ever before. Retail sales in Chinese cities jumped more than 10% in the first nine months of this year. And China's admission to the World Trade Organization in 2001 is prying open its markets to foreign companies. Over the next two years, China will further open its banking and telecom-services sectors to foreign companies and investors. That's why companies like McDonald's are pushing ahead with 100 new restaurants a year in China while cutting back elsewhere. In cars, General Motors sees the China market, growing at 40% this year, accounting for 20% of the world's growth in vehicle sales over the next 10 years. "China is the No. 1 strategic priority for GM globally," says Phil Murtaugh, chief executive of GM China Group.

China is filling the role in Asia once played by Japan. Japanese loans, investment and consumer spending helped lift Asia out of poverty, but a decade of deflation and flat growth has turned the country inward. With Prime Minister Junichiro Koizumi's feeble attempts to reform Japan's troubled banks running into a brick wall, next year will be another shaky one for Japan's economy. Look for continued trade growth between China and neighbors like South Korea and Malaysia. This might not save the whole region, but Asian revival won't come from anywhere else.