Chinese companies must now focus on wooing consumers at home

When Chinese Premier Li Qiang addressed the World Economic Forum’s “Summer Davos” in Tianjin, China, his message was clear: China must become a “mega-sized” consumption powerhouse. Not just the world’s factory, but its market too. His words underlined Beijing’s intention to make household spending a core growth engine rather than a supplement to exports. Faced with the harsh reality of steep tariffs and rising protectionism in the United States, many Chinese manufacturers are re-routing their exports from their biggest market to European and Southeastern Asian nations. This may offer short-term relief from the US-China trade war, but the long-term play? The domestic market. Many Chinese firms have always treated the national economy as a priority; however, fierce price competition and weak consumer confidence have made it a difficult market to scale, giving them strong incentives to boost exports. But given the global trade fragmentation, diversification alone no longer offers certainty or scale. This was illustrated by data showing China’s manufacturing sector contracting for a third consecutive month in June. The home market was never a nice-to-have, but it has become more of a strategic priority. The reasons are straightforward: US tariffs remain punishing, despite a trade truce agreed on to reduce levies recently as high as 145 per cent. Some Chinese companies are looking to the European Union, with its 450 million consumers, to sidestep steep American tariffs. But the continent is increasingly erecting its own trade barriers, having slapped stiff duties on Chinese electric vehicles and placed anti-dumping levies on Chinese hardwood plywood. Southeast Asia appears more accessible to Chinese exporters. At an Association of Southeast Asian Nations forum in Bangkok I attended, the tone was very optimistic, forward-looking and pro-integration. The message was one of openness to globalisation, with Asean positioning itself as a hub for trade, investment and innovation. China is central to that vision. None of this is new to Chinese exporters. They have long faced trade barriers and looked for clever workarounds. But this must be paired with a sharper focus on the internal market – already Plan A for most companies I speak with. Consumption accounts for around 40 per cent of China’s gross domestic product, far below levels seen in developed economies. Although China is grappling with a property crisis, the broader debt burden lies with local governments, not consumers, a distinction that gives Beijing more room to stimulate demand. The issue is not one of liquidity, but confidence. Despite ample credit and repeated rate cuts, consumers remain wary, with the property crisis and uncertainty lingering from the Covid-19 pandemic weighing heavily on spending. The question is not what factories must do, and more what policies would create the conditions to unleash consumption. The policy response must be to encourage spending through social safety nets, improving confidence in the market economy and shifting the national growth model towards internal demand. Importantly, this is neither a knee-jerk response to US tariffs nor a new idea. It is a continuation of a policy arc that began over a decade ago with Beijing’s “new normal” strategy. Demand may not yet be rising, with deflationary pressures persistent, but the groundwork is being laid. The challenge for the private sector will be getting ready for that shift. The challenge is significant. China’s market may be massive, with more than 1.4 billion people, but it is also brutally competitive, with many companies operating on razor-thin profit margins due to high consumer price sensitivity. The rebalancing of China’s economy towards consumption will reward those closest to the consumer and furthest along in innovation. Any product that ties into consumer sentiment, whether cars, retail or digital services, is likely to cascade benefits across supply chains. Boost car sales and battery, chip and logistics companies will benefit. Growth in one sector becomes oxygen for others. The opportunity is broad-based, rather than benefiting any one industry – and it will be contingent on real, sustained shifts in household spending. There is no single prescription for a Chinese manufacturer or any other company. The strategy to prepare for this economic shift from exports to consumption depends entirely on sector, scale and customer base. But one principle applies to most: innovate or be outpriced. China’s market is defined by margin pressure and product parity, so differentiation is essential. Standing out means innovating not only in products and technology but also cost structures, supply chains and partnerships. Innovation must become the business model, not just a department for research and development. For while policymakers have the fiscal and monetary space to support the transition towards domestic demand, the private sector must match that intent with execution. Exports will remain part of the mix. But the playbook must now start at home. Not in Washington or Brussels, but in Wuxi, Wuhan and Wenzhou.

Chinese companies must now focus on wooing consumers at home

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Re-routing exports away from the US offers only brief relief; the playbook must now start at home, with China’s vast market

Re-routing exports away from the US offers only brief relief; the playbook must now start at home, with China’s vast market