It amazes me to see how quickly China changes. On my recent trip to Shanghai I saw this much clearer. In my opinion, very soon China will not only be the largest importer of the world, they will also be the largest consumer. This will have impeccable effects on the shipping industry. The fast growth in consumerism and rising manufacturing prices will be the two key parameters of the increased imports in China. I am not counting the hunger for the natural resources here, as China has already become the biggest buyer of many commodities.
Shanghai is already one of the most expensive housing markets. Luxury car brands are selling the most cars in China, compared to the rest of the world. On the street where my hotel was, there were a lot of high story and shiny shopping malls, all of them are full of people and many new ones were under construction. All luxury shops that you will see in New York, London and Paris are opening one after the other. This change is spectacular, and it made me think what happens when the buying power of the people of China increases? What would the global effect of this increase entail?
According to chinaknowledge.com, with a population of 1.3 billion, China presents immense potential as the largest consumer market in the most populous nation in the world. Driven by a strong economic growth, the Chinese consumer market has been long coveted by companies that are eager to position their products at the top of the market pyramid. China has been experiencing relentless surge in consumer buyings in recent years. Driven by the speculations in the domestic properties and housing market, there have been emergence of billionaires.In 2007, China had the second largest number of billionaires in the world, behind the U.S., where the number of Chinese billionaires totaled at 108, rising about tenfold from the previous year. Meanwhile, there were about 300,000 Chinese millionaires in 2007. Pertinent to the growing economic environment, the presence of a strong middle class is also observed to be stronger. Defined broadly based on the level of disposable income, educational level, as well as purchasing habits and attitudes, this group of consumers has adopted modern purchasing habits. Estimated at 250 million of the population, this middle class is fast becoming one of key drivers behind this growth.
The lower income level people are also supporting the growth. Sitting in an authentic Shanghai style Chinese restaurant, the person I was talking to mentioned that his employees are very fond of Starbucks coffee which is sold for the equivalent of $3.50.
He mentioned those who are doing the most basic jobs and getting paid the lowest salaries are buying two cups of coffee a day. This means, the majority of their income goes to something as simple as coffee. Other than taste, the image that this brand has, has a great effect on people.
China became in the biggest manufacturer in the world in 2010. But the era of cheap China may be coming to an end. A recent article I came across in the Economist, in the coastal provinces of China where most of the factories are, costs are soaring. According to an investment bank’s survey of over 200 Hong Kong based manufacturers operating in Pearl River Delta, wages have already risen by 10%. Rising costs have become the biggest challenge for Chinese manufaturers, not corruption nor piracy any more.
It is predicted that the cost of manufacturing in China could soar twofold or threefold by 2020. IF China’s currency and shipping costs were to rise 5% annually and wages were to go up by 30% a year, by 2015 it would be as cheap to make things in North America as making them in China and shipping them to North America. This convergence will be much slower in reality, however the trend here is very clear.
Eventually China will become the biggest consumer country of the world and this will have a tremendous impact on the shipping industry. China’s Intra Asia traffic has already increased a lot. China’s biggest import partner is Japan with 12.27%, Hong Kong with 10.06%, South Korea with 9.04%, US with 7.66%, Taiwan with 6.84%, Germany with 5.54% (2009). These values will keep increasing in the upcoming years and the shipping trend will be, rather than from China to the rest of the world, from the rest of the world to China. Eventually, when income levels come to a certain point, Chinese imports from developed countries will increase and this will transform the shipping industry. Ocean carriers will open new services to China and new services and ocean carriers will emerge. This might have positive effects as well as negative to the global shipping industry. Only time will tell.