Time and time again, observers find certain consumption trends in China downright peculiar. For example, why on Earth has there been such a surge in luxury spending and generally speaking, spending meant to impress the proverbial Chinese version of the Jones family in a country that used to be plagued by debilitating poverty a few decades ago to such a degree that the average life expectancy at birth barely surpassed 50 years back in the sixties?
Many Western observers are left scratching their heads by this reality, with quite a few of them simply assuming there is something about Chinese culture/habits so different that they will never be able to wrap their heads around it.
As not just an economist but an Eastern European economist, I believe I’m in a reasonably good position to shed some light on this topic. In other words, address the oftentimes misunderstood economic freedom in China, which frequently leads to excessive to the point of being tasteless consumerism… consumerism on steroids, if you will.
Having grown up in Romania, a formerly communist* nation (I was actually born in the year of the revolution which marked the transition away from communism) and having been raised by parents who were accustomed to living in a country where supermarket shelves were literally empty (the problem was not the lack of money but rather the lack of options when it came to spending said money), I ended up putting the pieces together when analyzing the behavior of people who assumed than since communism and its limitations were relics of the past, this meant spending every last penny in a reckless manner was in order.
To a significant degree, it is what made me decide to become an economist in the first place.
Paradoxical situations which involved people who I knew were living paycheck to paycheck and literally had difficulties putting food on the table, yet who somehow always found ways to buy status symbol goods such as cars and later on phones that they normally couldn’t afford. The idea that someone living paycheck to paycheck “splurges” with borrowed money in an effort to “fit in” was something I found fascinating and upon discussing the topic at length with a wide range of other professionals, we collectively realized that it all makes sense.
Think of it as a combination between economics and psychology, perhaps behavioral economics would be the appropriate category but for reasons I will not get into, I consider it too narrow. Actually, let us scratch that and view the situation from the perspective of simple logic:
- In Romania prior to 1989, just like in China, life was defined by terms such as “privation” or in other words, most of the things the younger generation takes for granted would have been considered an exotic dream by that generation’s parents and grandparents
- Naturally, this affected said parents and grandparents on a psychological level. In Romania, people used to literally dream about receiving oranges or bananas as a gift, fruits which are frequently thrown away without blinking by today’s generation. The same principle, not necessarily related to the same products, is valid in China
- As time passed, Romanian as well as Chinese citizens found themselves able to buy things which were out of reach in the past, a complete consumerist paradigm shift
- Naturally, a strong impulse manifested and manifests itself to consume as much as possible, in a manner similar to what those in the West report about their great-grandparents who lived through the Great Depression and are obsessively stocking up on food despite the fact that we are anything but in a shortage situation. Whether we are referring to Westerners who lived through periods of deprivation such as the Great Depression or entire generations of Romanian or Chinese citizens who were unable to consume, we shouldn’t judge the subconscious impulse to “recklessly” consume too harshly
What does the future have in store?
As always, it is impossible to draw perfect parallels between what happened in Romania 30 years ago and what is happening in China these days because history doesn’t repeat itself. I firmly believe, however, that it does rhyme and while predicting the future is impossible, finding common denominators is anything but.
The answer is most likely related to one key word: time.
As time passes, a lot of the wounds of the past are healed when it comes to people who have lived through emotionally challenging events… let’s not even refer to younger generations where collective “emotional history lessons” remain undiscovered. As such, consumption habits are gradually tweaked and while the desire to impress the proverbial Joneses never truly goes away (the habit is still very much alive and kicking in the West today), it gradually becomes less and less rough around the edges.
Why should you care about these trends as someone who either owns Chinese assets or is interested in gaining exposure to them? Simply put, understanding them enables you to meaningfully “get” the country you are analyzing and by doing that, you are able to position yourself far better than economic actors who limit themselves to a more than superficial understanding of complex phenomenon types such as the ones illustrated in this article.
Trends emerge and change, habits are either tweaked or replaced altogether. Keep your finger firmly on the pulse of let’s say a nation’s spirit and you will be able to take advantage of opportunities (in China and elsewhere) beyond your wildest dreams, whereas competitors will be left frustrated by the opaque lens through which they chose to view a certain jurisdiction. The ball is in your court and, of course, the ChinaFund.com team is at your disposal if you are interested in working with an entity which has been around the block with respect to “all things China” for over 13 years. Simply send us a message with what you have in mind through the Contact section of our website and we will touch base.