By Henry C K Liu
In the past three decades, under the Chinese government’s policy of promoting export with low wages, the country’s manufacturing sector grew up depending on orders from large foreign wholesale buyers such as Walmart and others to produce brand-name consumer goods familiar to US consumers in the United States market.
These foreign buyers have enjoyed a position of unequalled market power to squeeze Chinese suppliers to keep wages there low and pollution high because Chinese suppliers have no other large-scale buyers. The Chinese manufacturing sector operates in a buyers’ market where suppliers have no market power.
For Chinese manufacturers to effectively produce for the domestic market, they need steady orders from large Chinese domestic wholesale buyers that operate national chains of retail stores in the domestic market. But such large domestic wholesale buyers do not now exist in any significant way, forcing Chinese manufacturers to depend on orders from foreign buyers for survival.
To jump-start the Chinese domestic consumer market, what is needed is a network of large-scale Chinese wholesale buyers to place large domestic orders with Chinese manufacturers to replace current export orders from foreign buyers.
To avoid the market risk and economic inefficiency of relying on private entrepreneurship to create a paradigm ship in the Chinese export market economy, these new Chinese large-scale domestic wholesale buyers with a national network of large retail stores selling brand-name consumer goods familiar to Chinese consumers should be new state-owned enterprises with strong financial support from state-owned banks and regulatory support from local governments to keep the millions of Chinese small and large manufacturers operating profitably without having to rely on stagnant export orders from foreign buyers like Walmart.
As soon as this structural market bottleneck is removed, with domestic demand growing rapidly under a new national policy of full employment and rising wages, a strong domestic market will take off to quickly constitute 70% of gross domestic product to replace the current oversized export sector, and to raise rapidly the standard of living of people and to keep the profit in China.
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