Drawing Back Overseas Consumption

Speech at 2016 Ffan Commercial Expo and 10th Wanda Group Annual Commercial Convention by Wang Jianlin

The subject of my speech today has much to do with consumption supply-side reform, and it is about the drawing back of overseas consumption.

As global economies, including the Chinese economy, continue to slow down, the contribution of exports and investment to China's economic growth is falling sharply, making consumption the most important contributor to the Chinese economy and everyone is seeking to boost domestic consumption in the country. There are two aspects in the study and examination of consumption. The first is on ways to stimulate domestic consumption, and the experts before me have put forward many solid suggestions on them just now. The second aspect that needs to be examined is how we can draw back consumption that is shifting overseas at an excessively fast pace. In this regard, I shall touch upon three main points.

1. Characteristics of overseas consumption

According to official data, China's overseas tourism consumption totaled 1.5 trillion yuan in 2015, of which, 800 billion was on shopping and 700 billion on flights and accommodation. Also, according to an authoritative foreign media outlet, overseas consumption by the Chinese on real estate purchases came in at about 150 billion dollars, which is equivalent to 1 trillion yuan. The combined figure is 2.5 trillion yuan and it does not include emerging areas of overseas consumption, such as aesthetics and medical treatments. These two major areas of consumption alone reached 2.5 trillion yuan. So what are the characteristics of such consumption?

Firstly, overseas consumption growth greatly outstrips domestic consumption growth. Even in the current economic slowdown in China which poses a challenging environment, overseas tourism consumption by the Chinese managed to post 20 percent growth last year. Secondly, overseas consumption is shifting from the consumption of luxury goods to that of daily necessities. There is a new phenomenon whereby Chinese consumers would acquire daily necessities from abroad when many China-made equivalents can in fact be found and are comparable in terms of quality. These include formula milk, medicines, and even electronic appliances. The change is very evident. Thirdly, new forms of overseas consumption, including consumption of medical treatment and sports, are emerging. For example, many Chinese are going abroad for medical examination and cosmetic surgeries. The cosmetic surgery industry in South Korea is bolstered by the increase in Chinese patients. The local government of a district near Seoul had approached me, offering to provide land whereby Wanda can invest in an area with twenty to thirty plastic surgery hospitals. When I asked for the reason, he said there is an overwhelming influx of Chinese patients but the standard of the industry as a whole is uneven, which is affecting its reputation. The notion is to bring branded hospitals together and form a district of cosmetic surgery practitioners. I countered with the idea of having such a district in China instead, feeling that China would be the better place to do so. Ultimately, we did not reach a consensus on the matter. After all, it would not be a good idea for me to set up such a district and increase the number of Chinese consumers seeking cosmetic enhancements abroad.

These characteristics of overseas consumption merit close examination. What gave rise to the rapid growth? Although domestic consumption as it stands now cannot be said to be sluggish, given that it is still maintaining double-digit growth, it is not exactly robust either, having come off from the 15 percent growth rate that it had posted for more than a decade. The fact that a sizeable part of domestic consumption is shifting overseas when domestic consumption is not particularly strong warrants special attention.

2. Causes of rapid growth in overseas consumption

First of all, there is the price issue. My analysis began with price. In theories on market competition, price competition comes first, followed by quality competition, brand competition and so on, and many consumers go for cheap options. Price is the most important trump card when it comes to attracting consumers. It is the primary reason why many Chinese are buying luxury goods, daily necessities and other products abroad. Many attribute the phenomenon to China’s high tariffs but high prices do not form the entire reason. It is the system. In other words, the problem lies with the entire price system. When I was a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), I proposed twice to lower our tariffs so as to boost domestic consumption. Subsequently, studies found that the problem cannot be pinned entirely on tariffs, but rather, it is the overall system that is in question.

Security is the second factor. Peace of mind is a very important reason for the readiness among Chinese consumers to make purchases and spend abroad and this is something that they cannot fully enjoy in the domestic market. Why are so many mainland Chinese flocking to Hong Kong to shop? It reached the extent of having a restriction imposed on the purchase of formula milk in Hong Kong and many even paid penalties for excessive purchase of formula milk. It is highly peculiar. One would think it is a good thing to have many eager consumers. I believe the lack of consumption security in the domestic market is the key reason for the shift of consumption overseas, although this may be an overstatement on my part. After three decades of reform and opening up, we have yet to fully address the issue of consumption security. With the rise of e-commerce whereby buyers and sellers do not meet, this will be an even harder issue to tackle.

Thirdly, there is the issue of service. One does feel like a king when spending overseas. As the saying goes, “money talks”, and Chinese consumers in foreign land do feel themselves being heard loud and clear. Domestic consumption in China probably still lags behind in terms of service attitude and environment, and the consumer experience is lacking. This requires in-depth research and at Wanda, we have our own business institute which studies consumer psychology extensively. A key point is that people consume mostly for others or for “face”, i.e. social recognition, more than for meeting needs. Consumption out of need is basic consumption. A large part of middle to high-end consumption is not for the benefit of the consumers themselves and this is when quality service and environment are very critical. It is precisely due to price, consumption security and service quality issues that China is witnessing a severe transfer of domestic consumption overseas and it is persisting at a fast pace.

3. Drawing back overseas consumption

Firstly, we need to be clearly aware that limiting or halting overseas consumption is impossible. What needs to be done is to work on two aspects. The first aspect is to reclaim some areas of overseas consumption and rein in the rapid shift of domestic consumption to these areas. Otherwise, China’s production, consumption and even development will be affected. For example, with 2.5 trillion yuan in overseas travel and real estate purchases, reclaiming a third of that would translate to nearly 1 trillion yuan in consumption. China’s GDP grew 6.9 percent to reach 67 trillion yuan last year. Reclaiming 1 trillion yuan would have boosted GDP growth by one percentage point and eased the load of domestic enterprises. Now, their profits are as thin as blades. Hence, I see the need to study how we can reclaim these areas or overseas consumption, as doing so can help to boost domestic consumption as well as increase our tax revenue and employment. Second