A New Era for China

For the past few decades, the availability of cheap goods from China “has pretty much subsidized the standard of living in the developed markets,” according to William Fung, managing director of Li & Fung, the Hong Kong-based trading company that sources and coordinates supply chains for about 30% of the brands found in the average American shopping mall.

During a recent appearance at Penn Fashion Week with designer Vera Wang, Fung detailed the new complexities his company is facing as retailers experience greater pressure to keep up with changing trends, expand into new markets and streamline production.

In a video interview with Knowledge@Wharton (which can be viewed in its entirety below), Fung discussed in more detail what he sees as one of the key changes for the next generation of retail — China’s transition from a significant source of goods to a consumer market that sets the trends for the rest of the world.

“China works in 30-year cycles,” Fung noted. “If you look at 1949 to 1979, from the founding of the People’s Republic to the opening up of China by Deng Xiaoping, during that 30 years, the world had no China. The world lost China. China closed itself off…. As a result, everybody did their commerce and went about their business very much without considering China.”

After Deng opened up the Chinese labor market beginning in the 1970s, however, “China burst on the world [growing the global labor force by] 20% to 25%.] China was “very productive, very aggressive, they knew that they were behind and they were trying to catch up,” Fung said. As a result, the world was hit with an onslaught of low-priced goods; meanwhile, “the China effect” kept the lid on labor costs in other parts of the developing world.

“But now that era seems to be ending,” Fung told Knowledge@Wharton. “What has happened is that China understands, first of all, that it needs another model for growth…. [Leaders in China now] understand fully that they have to raise the standard of living among their people. Now the country is moving into an era of consumer spending, domestic consumer spending, as a real alternative engine for growth in China.”

As consumer buying power in China grows, Fung predicted that demand for top-of-the-line goods will begin to increase among the country’s population. “As a result, there will be a lot of innovation and design that’s specifically tailored for the Chinese market. When that happens, that will also influence the rest of the world,” just like Americans’ increase in consumption after [World War II] meant that many products were initially created for the American market, Fung said.

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"A New Era for China" Knowledge@Wharton, [April 14, 2011].
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