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Asia's
consumer revolution gets serious
By John Berthelsen
The consumer revolution that Asia has been watching over the past 10 years is
starting to turn serious. Driven by changing demographics and increasing
wealth, consumers appear to be caught up in an awakening that promises to
revolutionize world economics and propel world trade and industry for a
generation.
That is because Asia is now at a unique confluence of circumstances that has
been developing for more than a decade - rising economic growth, stable
incomes, falling birth rates and household sizes, and high savings rates. Trade
patterns are being altered by World Trade Organization rules, opening the doors
for Western exporters. Even at a time when the rest of the world looks
perilously near a clash between the United States and most of the Islamic world
and economic conditions are unsettled at best, Asia's borders are more fixed
than in decades, with the exception of some adventurism on the part of North
Korea.
A generational shift is under way as well that has profound implications for
cultural traditions - for good or ill. What is being imported from the West may
not be just consumerism but undesirable social mores.
Christopher Woods, global emerging-markets equity strategist for Credit
Lyonnais Securities Asia (CLSA) in Hong Kong, in an impressively researched
study titled "Asia's Billion Boomers" released last September, wrote that
believes the Asian region's fundamentals "are set to drive world economic
growth for the next decade or two".
At the heart of Woods' thesis are two major developments. First, as occurred in
the United States at the end of World War II, a new generation of so-called
baby-boomers is coming into its own, and just beginning to spend on themselves
and their lifestyles. Woods believes that across Asia, including China and
India, there are 1 billion of them.
Second, living patterns are changing. The model is the United States, where in
the 1950s household formation started to increase faster than the population as
a whole, as children started to move out from their parents' homes. The trend
accelerated markedly as America's baby-boomers came of age. Those new
households required everything from the house itself to everything in it -
refrigerators and stoves, pots and pans, toasters and stereos.
Asia's renaissance owes its origins to Japan's mercantilist economy, locking
out exports while exporting to the West, which has remained a model since the
Japanese boom got under way in the 1950s. Asia's industrial plant has largely
been devoted to producing consumer goods that moved from Asian factories to
American and European homes and streets. Export flows from the West to Asia
have been dominated by goods for assembly and re-export back to the West.
While US gross domestic product (GDP) per capita was rising 576 percent over
the past 30 years, Asia's outside Japan rose almost twice as fast, at 1,067
percent. But consumer spending didn't rise at anywhere near that rate as
governments actively sought to hold it down. Now, however, the brakes are
coming off. Asia itself is increasingly buying what it is selling, and probably
will be buying what the world is selling as well as Asian consumers
increasingly look to Western styling, engineering, cuisine and entertainment.
The new home formation trend is illustrated in a research paper titled "Life
Cycle Saving and the Demographic Transition in East Asia" by academics Ronald
Lee, Andrew Mason and Timothy Miller. They found that the percentage of
Japanese elderly living with their children declined by 30 percentage points
between 1950 and 1990. In 1973, more than 80 percent of Taiwan's elderly lived
with their children. By 1993, that had fallen to 60 percent of elderly men and
70 percent of elderly women. Sadly, while 65 percent of Japanese women in 1950
expected to rely on their children in old age, that had fallen to 18 percent by
1990. With no elderly families to support, discretionary income is increasingly
going to consumer goods.
At the same time, women are joining the workforce at record levels,
particularly in Singapore and Hong Kong. In Sri Lanka, Indonesia, Thailand and
Bangladesh, free-trade and export-processing zones and other urban factories,
at least 80 percent of the workforce are women, according to TIE-Asia, an
independent regional labor network. To a great extent, they are exploited. Many
send a high proportion of their income to help support large or extended
families in rural areas. Nonetheless, this reporter recalls meeting a young
woman in a free-trade-zone factory in Penang several years ago. Asked why she
was working in a factory manufacturing semiconductors, she slapped her thigh
under her smock.
"This," she said. "Blue jeans." Those blue jeans have profound implications. To
switch from the modest clothing that many Malay Muslim women wear to blue jeans
represents freedom and almost certainly rebellion from parents. It represents
an acceptance of American style that many Asian countries would rather not see.
What this means is that as women in Asia go to the office rather than stay at
home, birth rates are dropping precipitously. Births in Hong Kong in 1999, at
0.93 per woman, were the lowest ever recorded in any economy. Singapore is
trying intensively to increase its birth rate, which is also below replacement
rates. (Singapore has been much derided for its attempts to play Cupid to its
yuppies through its matchmaking Social Development Unit, or SDU, which was
immediately tabbed "single, desperate and ugly" by wags.)
Young couples prefer smaller families. And, with fewer children in the home,
Asian families have pots of money to spend. Savings rates across Asia are far
higher than anywhere in the West. The average savings rate across Asia outside
Japan, according to the Asia Development Bank, was 31.6 percent of GDP in 2002.
By 1997, the Chinese were saving an astonishing 75 percent of their total
income. The only countries in Asia with savings rates below 20 percent are
Pakistan, at 12.7 percent of GDP, and the Philippines, at 16.8 percent. Even
those low rates are still healthy compared with a US saving rate that actually
went negative in 2001 as American consumers continued to prop up a flagging
economy whose industrial production had come to a virtual standstill.
"The important point ... is that there is a huge scope for savings to decline
in Asia before there is any question of macroeconomic vulnerability," CLSA's
Woods points out.
That is starting to happen. Credit-card usage is on the rise. One national bank
project in China expects to issue 200 million credit and cash cards by 2005 to
a total urban population of about 300 million people in 400 cities nationwide.
South Korean consumers are already considered to be the engine that drove the
country's economic growth in 2002, somewhat to their grief. As many as 10
percent of South Koreans are behind on monthly payments, forcing the government
to order banks and credit-card companies to tighten lending rules and reduce
limits on cash advances.
Even a small fall in savings rates, at a time when households are being formed
faster than the population is growing and wealth is increasing, should mean
that per capita consumption of consumer durables such as refrigerators, cookers
and televisions would grow substantially. Nor will consumer durables be the
only category to grow. Discretionary spending can be expected to skyrocket on
everything from movies to luxury items such as jewelry, cars, and the other
items that powered the huge boom in US consumerism that has lasted for more
than four decades.
The result is that as young Asian families go out on their own, as American
ones did, they will have lots of discretionary savings to spend - on consumer
goods. Young women in Shanghai, Singapore and Hong Kong now look as
sophisticated as their counterparts in San Francisco and New York. The image of
the young, hip Singaporean or Hong Konger, driving a BMW, drinking Martell
cognac, wearing a Rolex and Gucci shoes and eating in an Italian restaurant, is
beginning to spread increasingly out from the major cities. India, for example,
now has about 300 million people who can be termed middle-class - more than the
entire population of the United States.
While statistics in China are notoriously unreliable, as of 2000 the average
urban household now had "one television, electric fan and woolen coat, and at
least two small sofas", according to Euromonitor, the international market
research firm. The majority of rural households now have a TV, and nearly half
have color television. About 3 percent own a computer.
Today, the average Chinese household shops for food daily, only buying fresh
produce for that day's consumption, with an average daily expenditure of
perhaps 30-40 yuan (US$3.75-$4) per trip. Not only in China but across the rest
of Asia as well, the consumer is likely to patronize different shops for each
item. The produce, the fish and other meats, probably come from no more than a
few kilometers away.
But increasingly, as supermarkets spread across the countryside, more and more
shoppers visit out-of-town shopping malls and supermarkets. These are
institutions that have the resources to bring in consumables from far afield,
and which consumers increasingly want. In Singapore and Hong Kong in
particular, because of their status as free-trade ports, it is routine to find
Danish ham, Dutch chicken, Belgian artichokes, Scottish salmon, and potted
meats from the United Kingdom. Wines come from California, Australia, Italy,
Chile, and China. American packaged foods are very popular.
Now supermarket chains are now developing all across Asia, from Indonesia to
India to South Korea, and bringing with them these kinds of international
choices. Wal-Mart, Costco, the UK-based Tesco and others have taken a stake in
Asia as the hypermarkets move in. Costco says it plans up to 70 stores in
Japan. Wal-Mart has purchased an interest in the 400-store Seiyu food and
clothing chain and says it expects international sales to amount to as much as
a third of its total revenue within five years. Wal-Mart and the French
Carrefour chain now have nearly 50 stores in China. That is already beginning
to wreak damage on mom-and-pop operations across Asia. Thailand has begun to
experience protests against big-box operators like the ones the US has
experienced for a decade (see
Free trading at the global hypermarket, November 23, 2002).
The big question is how much of Asia will follow the West into all of the
practices that they find culturally and socially unattractive. The move away
from home by children so far has not cut severely into a culture of respect and
veneration for elders. The younger generation are still very likely to spend
all of the major holidays - and weekends as well - with parents and
grandparents. Grave-cleaning days result in the congregating of entire
families.
It will be sad indeed if, for instance, a big nursing-home industry appears in
Asia to take care of the elderly who can no longer take care of themselves, and
whose family will not take care of them. There are questions whether the
breakdown of families will result in youthful rebellion and crime. But the
revolution is under way. It only remains to be seen which way it will go.
(©2003 Asia Times Online Co, Ltd. All rights reserved. Please contact
content@atimes.com for information on our sales and syndication
policies.)
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