Rural shops show income gap on Chinese economy

XIAHE – Tang Linquan isn’t about to apologise for the counterfeit goods that fill his shop.

Fake soccer and basketball jerseys vie for shelf space with obscure brands of crackers and sweets. A bottle of wine tries to lend itself an air of credibility with a bust of George Washington, “One Dollar” printed below it.”I can’t even get hold of genuine products,” Tang said of his jerseys, adding that he was not concerned about getting into trouble because local police couldn’t even tell the difference.”And even if I offered the real thing, nobody would buy them because they would be too expensive.”Tang’s shop – like most others on the main street of Xiahe, a small town in rural Gansu province in China’s west – testifies not only to the pervasiveness of pirated goods throughout China, but to one of Beijing’s biggest headaches: how to lift rural incomes, and with them, consumption.An economic and government centre for the surrounding area and a traditional pilgrimage destination for Tibetan Buddhists, Xiahe’s stores offer essentially all the necessities a resident of this mountainous region needs.What’s striking is that nearly all of it – from tape recorders to shampoo to socks – is uniformly of low quality and made by no-name companies, whether imitating brand names or not.Shopping in rural China mocks the world of luxury conjured up by Western consumer advertising and suggests it will be an age before foreign firms can cash in on the 750 million Chinese, out of a population of 1,3 billion, who live in the countryside.In some shops the chemical smell from cheap plastic sandals is overwhelming.Shopkeepers tout their soft drinks as the real thing – unlike their rivals’.Almost the only brand names advertised are mobile phone networks and banks.DOUBLE-EDGED SWORD Xiahe’s shops show both China’s progress in providing a basic standard of living to its poorest and the challenges it faces in closing the urban-rural income gap and modernising its economy.”The reality of Chinese industrial policy over the years has been essentially the idea that a wide range of consumer goods has to be made available to the largest number of people at the lowest possible cost,” said Arthur Kroeber, director of Beijing economic research firm Dragonomics.That strategy ensures that the benefits of growth are more broadly shared and lets the poor feel their lives are improving, even as the gap between the haves widens, Kroeber said.Urban incomes grew 3,4 percentage points faster than rural ones last year, taking them to about 10 500 yuan (US$1 320) and 3 260 yuan a person respectively.But the strategy has its dark side.For one, the drive for low-cost goods creates serious product and food safety issues, especially in remote areas, said Min Tang, chief economist in Beijing for the Asian Development Bank.”This is dangerous.A lot of poisonous, low-quality products are most likely shipped to those places,” Tang said.The imperative of providing cheap goods for all also hobbles the economy, said Kroeber – whether in achieving economies of scale, moving up the value chain, protecting intellectual property rights or improving environmental standards.”All these things like IPR and environmental standards and so forth, this raises costs,” he said.”Up until now, frankly, there has been no serious interest in maintaining environmental standards precisely for that reason, because providing employment and the availability of cheap goods were much more important economic goals,” he said.That is changing gradually, Kroeber said, but is bound to be a long, drawn-out process.MOVING OUT To be sure, Beijing is investing record sums in rural infrastructure, has abolished the 2 600-year-old agricultural tax and waived school fees in an effort to lift incomes and give people greater confidence to spend more of what they do earn.To address food safety concerns, the commerce ministry has launched a drive to attract urban retailers to rural areas.That would help confront the symptom, but the root cause is low incomes, said Lu Feng, an economics professor at Peking University.And the key to earning more is prodding more people to move to urban areas.But an array of obstacles means that is easier said than done.”While it has been gradually improving, the institutional setting here generally does not encourage migration,” Lu said.Tang and Kroeber agreed, saying it was essential that the government improve educational opportunities in the countryside so people have the skills to thrive if they move to the city.”On the stimulating consumption side, that really is the game – getting more people into the urban economy at some level, even if it’s a very low level,” Kroeber said.Nampa-ReutersA bottle of wine tries to lend itself an air of credibility with a bust of George Washington, “One Dollar” printed below it.”I can’t even get hold of genuine products,” Tang said of his jerseys, adding that he was not concerned about getting into trouble because local police couldn’t even tell the difference.”And even if I offered the real thing, nobody would buy them because they would be too expensive.”Tang’s shop – like most others on the main street of Xiahe, a small town in rural Gansu province in China’s west – testifies not only to the pervasiveness of pirated goods throughout China, but to one of Beijing’s biggest headaches: how to lift rural incomes, and with them, consumption.An economic and government centre for the surrounding area and a traditional pilgrimage destination for Tibetan Buddhists, Xiahe’s stores offer essentially all the necessities a resident of this mountainous region needs.What’s striking is that nearly all of it – from tape recorders to shampoo to socks – is uniformly of low quality and made by no-name companies, whether imitating brand names or not.Shopping in rural China mocks the world of luxury conjured up by Western consumer advertising and suggests it will be an age before foreign firms can cash in on the 750 million Chinese, out of a population of 1,3 billion, who live in the countryside.In some shops the chemical smell from cheap plastic sandals is overwhelming.Shopkeepers tout their soft drinks as the real thing – unlike their rivals’.Almost the only brand names advertised are mobile phone networks and banks.DOUBLE-EDGED SWORD Xiahe’s shops show both China’s progress in providing a basic standard of living to its poorest and the challenges it faces in closing the urban-rural income gap and modernising its economy.”The reality of Chinese industrial policy over the years has been essentially the idea that a wide range of consumer goods has to be made available to the largest number of people at the lowest possible cost,” said Arthur Kroeber, director of Beijing economic research firm Dragonomics.That strategy ensures that the benefits of growth are more broadly shared and lets the poor feel their lives are improving, even as the gap between the haves widens, Kroeber said.Urban incomes grew 3,4 percentage points faster than rural ones last year, taking them to about 10 500 yuan (US$1 320) and 3 260 yuan a person respectively.But the strategy has its dark side.For one, the drive for low-cost goods creates serious product and food safety issues, especially in remote areas, said Min Tang, chief economist in Beijing for the Asian Development Bank.”This is dangerous.A lot of poisonous, low-quality products are most likely shipped to those places,” Tang said.The imperative of providing cheap goods for all also hobbles the economy, said Kroeber – whether in achieving economies of scale, moving up the value chain, protecting intellectual property rights or improving environmental standards.”All these things like IPR and environmental standards and so forth, this raises costs,” he said.”Up until now, frankly, there has been no serious interest in maintaining environmental standards precisely for that reason, because providing employment and the availability of cheap goods were much more important economic goals,” he said.That is changing gradually, Kroeber said, but is bound to be a long, drawn-out process.MOVING OUT To be sure, Beijing is investing record sums in rural infrastructure, has abolished the 2 600-year-old agricultural tax and waived school fees in an effort to lift incomes and give people greater confidence to spend more of what they do earn.To address food safety concerns, the commerce ministry has launched a drive to attract urban retailers to rural areas.That would help confront the symptom, but the root cause is low incomes, said Lu Feng, an economics professor at Peking University.And the key to earning more is prodding more people to move to urban areas.But an array of obstacles means that is easier said than done.”While it has been gradually improving, the institutional setting here generally does not encourage migration,” Lu said.Tang and Kroeber agreed, saying it was essential that the government improve educational opportunities in the countryside so people have the skills to thrive if they move to the city.”On the stimulating consumption side, that really is the game – getting more people into the urban economy at some level, even if it’s a very low level,” Kroeber said.Nampa-Reuters