From Traffic Consumption to Quality Consumption
Under the backdrop of a global economic recession, factors such as shrinking external demand, sluggish domestic consumption, suppressed real estate demand, the manufacturing sector's outflow due to the Trade and Technology Wars between China and the U.S., and obstacles to the industrialization of new technologies are highly probable. The affected industries include real estate, construction, wholesale and retail, manufacturing, education, information transmission and IT services, as well as scientific research and technical services, making up more than 50% of the entire TOP 10 industries. Assuming that the productivity creation and contribution of these industries, as well as their economic growth contribution rates remain steady, the basic public services, agriculture, forestry, animal husbandry and fishery, leasing and business services, cultural, sports and entertainment industries, and transportation and postal services will need to collectively bear the burden of achieving a 5.2% economic growth target in 2024 compared to 2023. However, these industries will face significant challenges.
The author believes there is pressure but no need for despair. This article focuses on breaking through the consumer industry, which is the foremost contributor. The number of enterprises contributing to productivity creation in the consumption and wholesale retail industry accounts for 26.26% of the total, with an economic growth contribution of 15.34%. If we strike a solid blow in this area, we can foster prosperity across various sectors, as breaking through the consumer industry, which holds the largest economic contribution, will have a leading and pulling effect on other industries.
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China has 733 million employed individuals, with the non-private sector employing 170 million in 2021. This means that the private sector must account for 563 million jobs. Among the 170 million non-private sector employees in urban areas, 107 million work in limited liability companies, joint-stock limited companies, Hong Kong-Macau joint ventures, and foreign investment enterprises. Clearly, the 563 million workers in the private sector and over 63 million in limited liability companies constitute the backbone of China's socialist productivity and creativity, representing the majority of China’s political economy and people’s livelihoods.
The author hopes that global decision-makers and intellectual elites will focus on the current situation, balancing solutions to unique issues within their contexts, and finding a coexistence pathway for American innovation and the application of innovations in China’s largest market. Solutions are also needed for real estate issues, domestic demand and inflation or deflation, the concentration of wealth, and the unbalanced influence of financial wealth and political power on people's livelihoods. Recently, during a conversation with an elite from a state-owned enterprise, they described a common phenomenon: "Leaders cannot find talents below them, and young people see only unmet aspirations above.” In simpler terms, this signifies the disconnect between the vested interest groups and young people seeking developmental opportunities, a pervasive issue faced by all countries globally today. I believe that resolving each of these topics will resonate worldwide and bring forth unique benefits for humanity.
Breaking through consumption is the top priority
Reports indicate that in 2021, China's final consumption accounted for 54.3% of GDP, with government and household consumption at 15.9% and 38.4%, respectively. This figure is significantly below the OECD average of 77.3%, where government and household consumption is at 18.3% and 59.0%. It is also lower than the world average of 72.0%, with government and household consumption at 17.1% and 54.9%, respectively. Specifically, in the U.S. and the U.K., final consumption expenditures accounted for 82% of GDP, with household consumption at 60%; in Japan, it reached 75.3%, and Germany at 71.4%. Even for emerging economies like Mexico, Russia, and India, final consumption expenditures accounted for 77.9%, 67.8%, and 70.7% respectively.
In 2023, China's GDP is projected at 126 trillion yuan. Assuming a 5% economic growth target for 2024, this means an additional 6.3 trillion yuan in GDP (126 trillion yuan multiplied by 5%). If we assume that the consumption percentage of GDP in 2023 is 55% (including government and household consumption), the contribution of consumption to GDP is 69.3 trillion yuan. Should the contribution of consumption to GDP increase by 10% in 2024, we would achieve 6.93 trillion yuan. Even if other industries maintain their economic growth at the levels of 2023, it would be possible to exceed the 5% economic growth target for 2024.
How can we achieve a 10% increase in consumption by 2024?
The key lies in upgrading consumption and removing constraints on the consumption industry.
Those familiar with the trajectory of consumption economic development in China over the past 20 years know that aside from government consumption, the growth of household consumption has followed two paths: offline development and urbanization expansion; and the online extension represented by Alibaba. Two well-known stories epitomize the flourishing of China's household consumption economy.
One story involves a bet between Lei Jun, Chairman and CEO of Xiaomi, and Dong Mingzhu, Chairwoman of Gree Electric. On December 12, 2013, at the 14th Annual Award Ceremony for China’s Economic Figures hosted by CCTV, Lei Jun stated that if Xiaomi's revenue exceeded that of Gree in five years, Dong Mingzhu would owe him 1 yuan. Dong Mingzhu quickly retorted that if they were to bet, it should be for 1 billion yuan. At that time, the vastness of China’s consumer market and its endless potential gave them both optimism and confidence.
Another story is the 'Double Eleven' shopping festival created by Alibaba. Since its inception, the transaction volume, number of orders, and number of participants on 'Double Eleven' in a single day have equated to the annual achievements of a developed city in China, leading to unprecedented growth in brand categories, employment, and logistics in the consumption industry.
The statistics highlighted above represent some of the most dazzling data in terms of China's economic development. However, over these past 20 years, the consumption sector has been ingrained with the imprint of the "trade, industry, technology, and market." The offline price wars and online entry monopolies are both driving forces of China’s market economy development while also potentially introducing new problems. Cases like the price war initiated by Changhong in the color TV industry, the competition for the highest bid in traditional liquor on CCTV, and various price wars in the appliance sector exemplify significant trends in China's consumer market, accelerating bulk and scale efficiency comparisons across sectors. In the online realm, a "war of search, a battle for mobile entry, and a conflict of algorithms" have led to a competition for traffic monopoly based on the underlying logic of traffic domination, culminating in the emergence of Baidu as a search engine, Alibaba in e-commerce, and Tencent in instant messaging, collectively known as the BAT trio. The memory of the 2014 taxi fare subsidy war, where Didi’s subsidies exceeded 3 billion yuan, remains fresh; likewise, Douyin and Kuaishou’s challenges to the monopoly of Tencent, Alibaba, and Meituan through short video algorithms illustrate this intense competition. Following several monopolistic online consumption contests, user growth and engagement in China’s online consumption have begun to plateau, with monthly active user growth rates declining from 4.9% in 2018 to 1.7% in 2020.
These events mark a turning point away from the era of offline channel expansion and online traffic monopolization, revealing new challenges in the trade, industry, technology, and market. While acquiring traffic has become less of an issue, the crucial task remains improving conversion rates, increasing average transaction value (ATV), and enhancing average revenue per user (ARPU)—essential metrics for enterprises. In contrast, the costs for merchants and brands to attain accurate push traffic from monopolistic platforms continue to rise, and the benefits of monopolies far exceed the gains from quality enhancement and refined service improvement for brands. Whether online or offline, major players seem to be subtly shifting consumption from an open to a closed model, moving from innovation toward monopolistic protection of vested interests. Issues like “the shift from openness to closure and monopolistic profit grabbing that contravenes market principles” are social development challenges, constraining the evolution of the consumption sector and stifling its growth potential.
The core implications of new quality consumption
Interpreting the consumption industry through the lens of new quality productivity, the questions arise: how can we achieve an upgrade in household consumption? How can we utilize traffic as a brand service on the supply side to realize quality improvement and efficiency gains in consumption? How can we build a modern service sector with Chinese characteristics that enhances quality and expands capacity? How can we address the challenges posed by the shift from openness to closure and monopolistic profits, and create a new type of traffic-driven brand upgrade that delivers an unparalleled experience of safety, trust, and satisfaction to consumers? How do we satisfy the urgent needs arising from changes in demographic structures?
1. Areas of significant potential contribution from the consumption industry
The U.S. mainly focuses on services, while China predominantly has a manufacturing industry. The proportion of China’s secondary industry is large while the tertiary industry’s share is small, along with a scarcity of high-tech sectors; the opposite is true for the U.S. with a high proportion of third industry and abundant high-tech sectors. China's economy mainly comprises a public ownership structure, alongside a diverse economy, with more macroeconomic controls compared to other countries. The state plays a more active role in the economy than in the U.S., and further opening up in the future will help ameliorate these imbalances.
Between 1970 and 2017, U.S. household consumption displayed strong growth, notably in pharmaceuticals, leisure goods, and innovative technology products; areas of robust growth in service consumption included health, entertainment, finance and insurance, and education services. In contrast, from 1985 to 2017, Chinese household consumption focused primarily on food, tobacco, alcohol, clothing, housing, and new technology products.
The percentage of household consumption's contribution to economic growth observed in the U.S. serves as a reference for China. China has gone through three stages of over two decades each: the first generation moved from rural areas to urban settlements, while the second generation is now rooting in cities and moving towards globalization. The first generation is aging, with those aged 60 and above making up 18.7% of the population—amounting to 270 million individuals—while the second generation following the first now faces international economic turning points and the risks spillover from the heavily economic-contributing secondary industry. The fields with substantial potential contribution from the consumption industry include pharmaceuticals and health products, leisure goods, innovative products, health services, entertainment services, financial and insurance services, educational services, and other services (like tourism). I believe the development of these segmented consumption industries requires the government to give the market more freedom while reforming or improving actions that do not benefit the development of China’s consumption industry, including the monopolization of resources.
2. Financial services and credit services need reform
The earliest innovation in financial credit services originated from Alibaba's use of transaction data from Taobao and Tmall to provide digitized credit services, enabling instantaneous credit approval and disbursement. The underlying logic of "credit granting" has remained unchanged. Traditional credit relies on pledged property or valuable assets, while Alibaba's framework pledges online shops and their transactional data as digital assets. Nonetheless, constraints imposed by traditional financial institutions with high-interest credit rules—annual interest rates exceeding 18%—put immense pressure on shop owners seeking loans. Consequently, when Alibaba leveraged this sky-high lending capacity, it spiraled out of control, affecting the foundational stability of social credit systems. Faced with overwhelmingly high annual interest rates, shop owners struggled to support their credit needs, while the out-of-control leverage disrupted the fundamentals of financial service, ultimately leading to strong regulation from state financial institutions, drawing a close to the innovative attempts at digital asset credit granting.
From an objective standpoint regarding digital asset collateral credit, platforms such as Taobao, JD.com, and Pinduoduo have built their entire digital credit approval system based on trustworthy transaction rules and authentic transactional data governance. This enables them to create risk-controlled assessments of digital assets for online shops and specific channels, facilitating online lending services. However, a regrettable limitation is the inability to encompass offline physical stores within the realm of digital credit assets, thus restricting broader credit services. Overall, the establishment of digital asset credit services, grounded in trustworthy transaction rules and authentic data governance, represents a new attempt to amalgamate credit approval with technological application, yielding noteworthy societal benefits.
3. Potential tracks for upgrading the consumption industry
The effective utilization of offline physical traffic monetization and the creation of service scenarios that draw offline traffic online, while also channeling online traffic to drive footfall offline, is not a novel concept; it is commonly referred to as local business circles. This concept and its attempts have persisted for years, yet the business model remains largely stagnated at the offline "+ Internet" stage due to the complex interests and clearly defined divisions of offline resource stakeholders. Initially framed "offline operations and management models" are unable to clearly define whether the integration of online + Internet merely leads to a migration of transactions rather than true incremental gains. Coupled with monopolistic pressures from major brands and online platforms shifting toward closure and excessive profit acquisition, project decision-makers may perceive that achieving a balance in internal and external stakeholder interests, while realizing expected economic benefits in the short term, may be unfeasible. Ultimately, these initiatives may be relegated to mere cost centers, seen as a convenience channel for servicing customers with physical resources.
As it stands, new industries akin to “dynamic local business circle upgrades,” if pursued using existing management models, financial performance systems, and specialized divisions, risk becoming an “internal consumption without benefit.” Facing the competitive pressures of brand monopolies and traffic platform constraints, along with the lack of capital support (wherein the internal conflicts and social issues of closure and monopoly remain unresolved), and amid the pessimistic “intimidation” of the economic landscape from some so-called experts and faux elites, these projects are likely to result in a “chicken rib” scenario. However, viewed from an alternative angle, if “local business circle upgrades” are positioned as directly elevating brand quality and service sector expansion, this move effectively narrows the gap between supply and demand, boosting the efficiency levels of the consumption industry. Concurrently, the service scenarios or channels connecting supply and demand will also improve, catering to higher societal needs and creating more high-quality job opportunities, thereby yielding immense socioeconomic benefits. This approach serves as a pivotal mechanism for driving national objectives through accelerated consumption industry growth and transformation. By adhering to the laws of economic development, a beneficial cycle can emerge, ultimately forging a new ecological system surrounding the upgrade of the consumption industry: offline, centered on brands, shaping products, experiences, service upgrades, advertisements, and commerce; online, focusing on traffic, emphasizing convenience and responsiveness, creating digital images and credits, advertisements, and commerce, which collectively strengthen the core competencies of brand products while enhancing consumption services, likely driving the contribution percentage of the consumption sector to GDP growth beyond 65%. Regardless of how external environments shift, this optimistic projection, as endorsed by economists like Lin Yifu, stands a viable testament to the future trajectory where China remains a pivotal compass in global economic development over the next two decades.
For instance, my enterprise has been deeply engaged in aviation and travel consumption since 2018. The characteristics of consumption in the travel industry lie in the "itinerary" that adheres to pre-established routes, encompassing the journey from home to home, with consumption along the way involving accommodations, dining, shopping, entertainment, and leisure—the so-called flowing traveler consumption. On the supply side, airline and accommodation services are predominantly branded, catering to the brand visibility and direct consumption needs of these traveling customers. The aviation and accommodation industry already has comprehensive coverage through OTAs, transport groups, and travel agencies, yet issues such as monetizing traffic assets tied to travelers’ routes, deriving decision-supporting data from consumer behavior, upgrading service scenarios along the journey, and implementing post-travel membership systems for repeat purchases remain inadequately addressed due to the absence of specialized platforms and business models. Naturally, the vision that resource providers and brands within the travel sector hope to achieve persists in limbo: how to enhance the conversion rate and repeat purchases among transient travelers? How to increase the average transaction value from these travelers? How to boost the average revenue per user (ARPU) from individuals traveling through businesses? How to facilitate seamless crossover between dining, shopping, and leisure services? How to create service scenarios necessary for OTAs, travel agencies, tourist attractions, and airlines?
In conclusion, I firmly believe that the haze will dissipate, and the light will emerge, guiding us all toward a prosperous path in China's developmental tide, as we tirelessly strive for high-quality growth in the Chinese economy over the next two decades.
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