Ascertaining the True Structure of Consumption and Household Incomes in China

ABSTRACT

For the past twenty years, China's economy has achieved an average of over 9% annual growth. This prosperity has been brought about by a large-scale shift from the egalitarianism of the planned economy years to a laissez faire capitalism based on the tenets of competition and individual wealth. Economically speaking, this has meant that the state owned corporations have gradually ebbed from the market while private corporations and foreign companies have taken their place as the new engines of economic growth.

However, because this economic growth was achieved in the absence of any mechanisms for income redistribution such as income taxes or social welfare, a rapidly growing lower class has emerged alongside the wealthy. While the social structure under the planned economy - consisting of farmers and laborers - was strictly two sided, it has now become multi-faceted and multi-layered.

Although this diversification of occupation and class in Chinese society can be intuitively detected, there are still no statistics to support it. As a result, the strategies and policies formulated by investors and government policy makers continue to be based on the outdated macro-economic statistics.

The National Bureau of Statistics of China has responded by conducting a survey on household sector earnings and assets in urban areas. At the same time, a research group from the Chinese Academy of Social Sciences, aiming to ascertain the emergence of the multifaceted and multi-layered social structure in China, used the support of domestic and foreign researchers to put together and publicize the "Research Report on the Classes of Contemporary Chinese Society." The research report, however, was suppressed immediately after publication. The following paper uses some of the data from this report to attempt an examination of the actual structure of Chinese society.

In December of 2001, China gained its much-coveted membership to the WTO. This has been an important impetus for market liberalization and it is expected that international business standards will soon take root. As this takes place, foreign companies, and especially Japanese companies, are revaluating their investment strategies. Japanese direct investment into China extends back to the 80's, but, thus far, it has been entirely based on re-export strategies aimed at using China as a production base. The liberalization of the Chinese market, however, can be seen as an expansion of business opportunities, and it calls for the formulation of a new investment approach. In a word, Japanese investment attitudes toward China must begin to move more toward localization. This is because, more than the re-export type investments, a business strategy that targets the Chinese domestic market would more accurately apprehend the true structure of Chinese society and the Chinese market.

So, specifically speaking, what type of business strategy should Japanese corporations adopt? Judging from the emergence of a multi-faceted and multi-layered society in China, it would seem best if Japanese corporations leveraged their superior position in technological and engineering capabilities and, for the present at least, seized the Chinese market with their high added-value products.