The Domestic Market in China: Are you an NBA Pro or an Average Joe? Part II

So what if you’re not the NBA in the Chinese market?  (Not that NBA jerseys are flying off the shelves in China anyways)

In southern China earlier this week, I had several conversations with locals about the domestic consumer market.  I also thought that several readers of ChinaLawBlog’s post on this topic made solid comments worth reading.  The general consensus seemed to be that China’s domestic consumer market is still nascent. 

Before we look to NBA viewership stats and firms selling services through marketing reports, a strong weathervane of the domestic market might indeed be Chinese companies themselves.

A logical key indicator, to me, in determining whether China’s domestic markets are indeed on the rise, would be that their domestic companies and manufacturers would be more eager to sell locally rather than export to foreign markets.  This doesn’t seem to be the case for a few very fundamental reasons.

• Often, receiving payment from Chinese buyers is much riskier than foreign buyers. Many Chinese companies prefer to sell to foreign buyers because they have a strong likelihood of payment.  They may have to work on tough terms, but in the end, cash is king.  Late cash and/or some cash, is better than no cash.
• Quality standards.  The overall purchasing power of Chinese consumers remains comparatively low to developed countries.  To sell into this market entails manufacturing poorer quality product to be profitable.  A well-run factory will not use the same production line to create product for export markets as well as domestic markets.  You will see a great many companies that make product for both markets.  But quality from these firms is to be watched.  It’s unlikely that you’ll see an export-oriented firm falling all over itself to lower quality and sell into the Chinese market.  I have yet to run into an export-oriented manufacturer that will send all of the quality control staff home at lunch on Thursdays and Fridays so they can get some lower quality product out into the local market.

For these two basic reasons (not including serious challenges of distribution), in my humble opinion, the Chinese market has not arrived and will certainly take quite some time to mature.  Yes, there is an upper class in coastal cities that is growing in affluence.  This, however, is still very small.

A concise and well-written article, Reality Check, by James Fallows (h/t Chinahearsay) at The Atlantic, brings great clarity to the situation.  His anecdotal observations create an image that, to me, is far closer to reality, than so many of the China-sized hype articles out there.  I highly recommend the read.  I’ve personally emailed this article to friends because it’s important (to me) that America has an accurate perspective of China.