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Source: ANBOUND
Tuesday, May 28, 2019

In the past few decades, China has been a production-based society dominated by manufacturing and export. The secondary industry meanwhile has played a major role in stimulating its economic growth. Now, China is in the process of turning into a consumer-oriented society dominated by consumption. Consumption, acting as the main engine now determines the direction of the economy. Statistics show that the driving ability of consumption on economic growth, the proportion of the service industry in the economy, as well as the consumption structure in China are all indications that the country has the characteristics of a consumer-oriented economy.

In 2018, the added value of China's tertiary industry accounted for 52.2% of GDP, 11.5 percentage points higher than that of the secondary industry. The contribution rate of final consumption expenditure to GDP growth was 76.2%, an increase of 18.6 percentage points over the previous year and 43.8 percentage points higher than the total capital formation. Among the national per capita consumption expenditures of the year, service consumption accounted for 44.2%, an increase of 1.6 percentage points over the previous year.

Moving from a production-based society to a consumer-oriented society, China has not only seen changes in the form of its economy, but also in its economic growth pattern. The motivators of economic growth have changed from investment and production in the past to the present factors of urbanization and the service industry, as the drivers of growth shifted from investment and export in the past to consumption in the present. In this phase of the transformation of the Chinese society from production-based to a consumer-oriented one, Chinese public policies should also be transformed, and the same can also be said regarding the thoughts and public services provided by the Chinese governments.

Recently, Guangdong Province has issued its implementation plan to improve its consumption mechanisms (hereinafter referred to as the "implementation plan"), in which 29 specific measures in nine areas were proposed to resolve the conspicuous problems that constrained consumption. The implementation plan also aimed to improve consumer expectations in order to create a good consumer environment, as well as promote the formation of a strong and unified market. Guangdong's measures to promote the establishment of consumption mechanisms and institutions show that local governments in China are constantly exploring new ways and approaches to promote economic development, focusing on consumption and breaking apart from older policy ideas emphasizing on investment and production in the past. These changes also show that in the process of China's transition from a production-based society to a consumer-oriented one, and from the perspective of local policies, it is also necessary for the local governments to adjust and transform in order to adapt to the new economic situation and social environment.

Anbound's researchers have suggested that China's gradual entry into a consumer-oriented society is feature of this new era, and it is something that should not be brushed aside. For the longest time, China was too comfortable in being the "world's factory", and the Chinese society has subsequently adopted the traits of becoming investment and production oriented. Local governments excel at attracting investment and building industrial parks, while banks and capital markets have become very familiar to investment, production and construction projects. Enterprises too, are the main economic entities usually focuses greatly on investment and construction. Despite China becomes consumer-oriented, many local governments are still paying attention to investment and enterprises, on how to serve entrepreneurs, and help enterprises expand production. The consumption and market space issues still only occupy secondary importance. If China still engages in economic activities based on a production-based mentality, this can easily cause problems related to overproduction to occur. Anbound's chief researcher Mr. Chen Gong warned of the seriousness of the problem of overproduction. With the maturity of the consumer-oriented society, China continuing to promote and expand production would not be a wise idea. For the local industrial policies, it is necessary to adjust strategies so that they will help enterprises improve their technology and establish sales channels, and promote the building up of corporate brand credit, instead of encouraging enterprises to place too much investment in the production. Enterprises should also be given help in expanding their market and consumption, and engaging less in production-based operations.

The focus of local economic policy should be on promoting household consumption, developing services, and expanding market space. Market space and consumer market are more competitive factors than production capacity, and China should adapt to changes in this new situation to form a sustainable growth engine. The advent of the consumer-oriented society also means that there will be some huge changes. Anbound's researchers suggested that the focus of society and market should shift away from familiar investors, financial institutions, as well as approval bodies to consumers. As such, they will also need to turn to focus on consumers' needs and sentiments. In terms of urbanization, attention should be given to land indicators, urban expansion and land transfer fees. They should also specifically concentrate on improving the livability and attractiveness of cities. On the enterprise side however, China should focus on the scale of investment, the cycle of production, and the scale of revenues, as well as on the service needs and business environment of enterprises. In terms of government services, there should be a shift from large-scale constructions and extensive administration to meticulous improvements on the quality of public services. When it comes to market supervision and law, China should move from simple and extensive licensing approval and restrictive prohibitions to safeguarding consumer interests, and improving regulatory efficiency. In conclusion, the development models of the production-based and consumer-oriented societies are very different, and both the government and the market need to adapt to the changes.

For the formation and expansion of the consumer market, it would be necessary to consider the demands of ordinary consumers, rather than formulating policies from the perspective of producers alone. The consumer-oriented society requires China to let go of policies that restrict consumption. The various restrictions imposed on purchases and sales transactions are actually not conducive to consumption. In a consumer-oriented society, the government is no longer a direct participant in the market, but rather an environmental builder, maintainer, and public service provider. This requires the government to change itself from an investment-led, market-participating to become a truly service-oriented government. Additionally, in the consumer-oriented society, social intermediary service agencies are also required to be developed. To develop the service industry, having large numbers of service innovations are indispensable. Local government policies should also innovate from the perspective of service industry development, and improve urban comprehensive competitiveness in terms of employment policy, social security, education and medical care, rather than follow the past industrial policies, or continuing dated policy ideas like tax incentives to aid producers.

Final analysis conclusion:

China is evolving from a production-based to a consumer-oriented society. This not only brings about changes in new forms of the economy and growth patterns, but also requires governmental transformation at all levels from central to local. They need to change their thinking and adjust public policies in order to take charge of the development of consumer-oriented society, so as to adapt to this important change in the history of China's economic development.

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