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TheStreet Open House

Greater Role for Consumers in China Is Bullish for All

Stocks in this article: WMTBAGM

NEW YORK (TheStreet) -- It may sound odd that the Communist Party in China wants to let consumers play a "decisive" role in allocating resources in the People's Republic state-controlled economy, but it is bullish news for free markets around the world.

As the world's largest consumer of commodities and items ranging from coal to luxury goods, China is the driving economic force for many countries and companies. That is why the recent statement of the Communist Party at the end of a meeting of the party's 205-member Central Committee that, "The core issue is to straighten out the relationship between government and the market, allowing the market to play a decisive role in allocating resources and improving the government's role," for bullish for the global economy.

While the statement was short on details, third plenary sessions such as these of a newly installed Central Committee have resulted in critical economic reforms. Specifically cited for reform in the future were:

  1. fiscal and tax policy;
  2. a unified real estate market for urban and rural sectors;
  3. a sustainable social security system; and
  4. greater property rights for farmers.

As leading companies such as Wal-Mart (WMT), Boeing (BA), and General Motors (GM) have focused on growth in China as a critical component of corporate strategy, this is a very positive development.

Wal-Mart CEO and President, Mike Duke, recently announced that the company will open 110 new super-centers and Sam's Clubs over the next three years in China. This represents a shift in strategy for Wal-Mart as the new locations will be focused on smaller cities. These urban areas are expected to experience faster growth within the next decade. Retails sales in China are well over $2 trillion, yet Wal-Mart only booked $10 billion in revenue from the world's most populous country so the potential for growth is huge.

The newest model of the 737 twin-engine workhorse jet airliner from Boeing, the largest American exporter by dollar value, was designed to be ideal for regional flights in Asia, servicing the cities where Wal-Mart is building new stores. This is a burgeoning market, with Alwyn Scott writing in Reuters that, "Boeing predicts, for example, that air traffic in the Asia-Pacific region will increase 6.3 percent a year over the next 20 years, driven by 4.5 percent annual economic growth in China and India and rising middle-class incomes."

From its first joint venture in China back in 1997, General Motors has cultivated the market in China. The company now has 12 joint ventures in the country. General Motors has branded motor vehicles specifically for the China market. It is paying off as sales in China for September increased 13.7% from 2012. As its website states," The General Motors-China relationship dates back more than eight decades. GM China's vision is together with its partners to be the best automotive group in China."

In the United States, consumer spending accounts for about 70% of the gross domestic product (GDP). As noted by Paul Grunwald, chief economist, Asia Pacific at Standard and Poor's Ratings Services, "China is still sitting there with the lowest consumption to GDP ratio in the region. Consumption is 35 percent of GDP and is a good 25 percentage points from where it should be."

Clearly, the recent statement shows the goal of the leadership in China is to increase consumer spending. That will have many salutary effects, from easing the global trade imbalance to raising the quality of life in China to reducing factory emissions that harm the environment. For the Chinese consumer and the shareholders of Wal-Mart, Boeing, General Motors and others, it is very welcome news, indeed.

Jonathan Yates does not have a position in any of the stocks mentioned in this article.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage. X

Jonathan Yates is a financial writer who has had thousands of articles appear in periodicals and Web sites such as TheStreet, Newsweek, The Washington Post and many others. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

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