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Letter from China

Why Foreign Brands Should Pay Attention to China's Mysterious Communist Party Summit

Leaders Signal Boost For Consumer Sector, But Getting People To Spend More Will Be a Battle

By Published on .

What's the big takeaway from China's mysterious Third Plenum, the four-day Communist Party summit that was touted as a potentially momentous reform opportunity?

Disappointment, for pundits who expected the meeting to usher in reforms curbing the power of ineffeicient state-owned enterprises and encouraging more people to migrate into cities.

That did not happen.

But the vague memo issued out of the meeting, which closed Tuesday, offered one clue about leaders' drive for a more consumer-oriented economy: It said market competition would now play a "decisive role." The previous policy gave markets just a "basic" role, according to the official Xinhua news agency.

"It's definitely a big push for the consumer sector, as more competition is always better for the consumer, with lower prices and more variety," said Ann Lee, author of "What the U.S. Can Learn from China."

After years of 10% annual growth, China's expansion in third quarter slowed to 7.8%. Leaders are seeking ways to power growth beyond exports and investment in infrastructure.

More competition would be good news for foreign companies -- especially those that might profit from a rollback in the dominance of China's state-owned enterprises in sectors from railroads to banking, said Ms. Lee, adjunct professor of economics and finance at New York University. A new free trade zone in Shanghai, opened at the end of September, is a testing ground.

More details on the plenum are expected after lower-level officials hash out specifics. Analysts are debating whether it was a failure or if specific big reforms might still be announced.

Whatever happens, China's top-down leadership raises another question: How much can its leaders influence the habits of ordinary consumers?

China's household consumption levels are strikingly low -- about 36% of GDP, compared to 72% for the U.S. and 58% in Germany and France, according to World Bank figures. The Chinese government hopes its urbanization drive will encourage people to spend more to fund new city lifestyles.

But China "is not going to become a consumer paradise just because the government waved its magic wand," said Shanghai-based Tom Doctoroff, JWT's Asia Pacific CEO.

Many Chinese are still very budget-conscious, scrimping on private items like personal care products and home d├ęcor and saving up for public status boosters such as watches and cars, he said. (Some brands have used that insight to successfully reinvent themselves in China -- Starbucks coffee isn't so much a beverage here as a status symbol for drinking in public.)

China has few social safety nets, so people save for future health crises or unemployment. Because of the one-child policy, children often support two aging parents and four grandparents. The plenum promised vague improvements in social welfare but gave no details.

"The changes that are going to be required to truly liberate wallets and make people feel safe are so fundamental that it is a long-term destination," Mr. Doctoroff said. "It is an incremental progression to a level that I don't think will ever be Western."

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