Coach has 41 handbag stores in China and will soon have 8 more. Coach and China though, are about a lot more than handbags. According to NY Times Magazine columnist David Leonhardt, the Chinese consumer can fuel the world economy with “the urge to splurge.”
Currently though, annual consumer spending in China is not very high. At $2500 per person, it is less than the U.S. ($30,000) and Brazil ($7,000). What could create that “urge to splurge”? Leonhardt says that China has to move from sweatshops to innovation which means extending free education beyond the 9th grade and making the right decisions about resource allocation, wages and a transportation infrastructure.
If they are successful, the demand for Coach and other consumer goods and services will come from a larger middle class with more to spend.
The Economic Lesson
Between 1790 and now, the U.S. has progressed though 5 stages of economic development. 1) Starting as an agrarian economy, barter was dominant. 2) Then, through road, canal, and railroad building, regional specialization developed. 3) Having a transportation infrastructure enabled us to create a capital goods sector that produced steel and other manufacturing basics. 4) From there came the 1920s with the auto and the consumer taking over economic leadership. 5) Now, a services sector is dominant.
China is moving through its own development stages.