China: The next branding superpower?

    Trade tensions between China and the United States dominate the headlines. But the two countries actually agree on one thing: Both Chinese and American leaders want Chinese to buy more, much more. Yet they disagree over what those consumers should buy. This struggle manifests itself in many ways, including the ongoing dispute over the value of the Chinese currency, the renminbi.

    Among American leaders the conventional wisdom holds that China "manipulates" its currency. If only Chinese policy leaders would allow the currency to appreciate, thereby increasing its buying power, Chinese consumers would have more to spend on imports, 5%, 10%, even 20% more (20% being the stated amount by which Washington wants the Chinese currency to increase in value). At long last, we are told, Chinese consumers could do their part to rescue the still sputtering global economy, if only their leaders consented.

    This view rests on a faulty assumption, the assumption that China, which is now a manufacturing superpower, wants to remain only a manufacturing superpower that imports higher value added products and services ranging from Disney movies to American-managed investment funds.

    China's ambitions, however, are greater. China is pursuing the same strategy as the post-industrial economies of the U.S. and Western Europe -- attempting to move up the value chain by promoting the ownership and management of Chinese brands and, more generally, developing a service-driven rather than a manufacturing-driven economy. China's goal is to become a branding superpower. To achieve it Beijing is pushing for the rapid development of nationally and internationally competitive brands.

    And Beijing will go to great lengths to ensure the advent of Chinese brands. In China, branding is more overtly an issue of economic nationalism than in countries such as the United States.

    Most Americans associate the work of branding with companies and the marketplace, not with government officials and the state. Americans think it is Apple's job to make the iPod brand a household name, not the U.S. government's.

    But in China, what consumers desire and buy are not simply consequences of "the free market" and individual choice. Rather, Chinese consumer choices are also the consequence of ongoing policy decisions by China's leaders, especially the decision to encourage the rapid development of internationally competitive Chinese-based brands even while allowing multinational companies much greater access to Chinese consumers.

    Little wonder why China is reluctant to allow its currency to appreciate. Limiting the appeal of imports is harder than it used to be. In the post-WTO world, the Chinese state can no longer ensure consumer loyalty the way it used to: by banning imports, limiting access to the foreign currency needed to buy imports, or levying tariffs so high that foreign goods become prohibitively expensive.

    Now Chinese policy makers fear that as foreign brands gain better access to Chinese consumers, those consumers will learn to prefer such brands, leaving the country permanently stuck at the low end of the brand chain, doing the hard manual labor and collecting low wages but owning precious little of a brand's "value-added," the difference between the cost of making something and the value added through marketing, distribution, and retail sales. This provides the logic of China's economic development strategy of urging state and private companies to spend billions building brands.

    It is hard to exaggerate China's current level of national anxiety over the competitiveness of Chinese brands. Its historical analogue might be the urgency in the United States to win the Space Race after the Soviet Union launched Sputnik in 1957. Similarly, Chinese leaders believe they need to launch national brands or gain ownership of international ones before it's too late, the country's consumers committed to buying foreign-owned brands. Building or buying brands is considered a matter of national economic security and, of course, of national pride -- China wants its own international brands to reflect its commercial success and its status as a first-rate power.

    The Chinese government wants to develop competitive brands across the spectrum of consumer products and services, including high-tech consumer electronics (such as Midea, headquartered in Shunde, near Hong Kong), and to revive "established brands" such as Tongrentang, the traditional medicine company.

    This push to create Chinese-owned brands also applies to the service sector, where the Ministry of Commerce has set ambitious targets that include developing 100 restaurant brands, 50 hotel brands, and prominent brands in the beauty, laundry, and home service industries. To help reach these goals, state policies have promoted the creation of large-scale, horizontally integrated multinational corporations to compete against foreign multinationals.

    Chinese consumers are caught in between and often demonstrate a deep ambivalence toward domestic brands, as reflected in consumers' demands that the government protect Chinese brands against international rivals even as those consumers simultaneously buy foreign products. Photographs of anti-Japanese protests this past year, for instance, ironically show many protesters holding Japanese cell phones and cameras. That same year, China's biggest private pollster found that despite popular anti-Japanese sentiments and protests, almost half of those surveyed said they would buy a Japanese car.

    Will Chinese-owned and managed brands dominate the twentieth-first century? Will the near future find you driving a Chery car, surfing the internet via Baidu.com over China Telecom wireless, and shopping at Gome for all your electronic toys? That's unclear.

    But what's clear is that Chinese leaders are making a big push to try to have such brands dominate first China, next the world. And while consumers the world over may well celebrate any successes by Chinese for building a better mousetrap, search engine, or car engine, such consumers might also remember that their choices are not always made in completely free markets.

    Early results for Chinese brands are mixed but we have only just begun and it's easy to imagine that, by 2100, consumer consciousness the world over will be shaped by as many Chinese-owned or created brands as they are now by the Cokes (KO, Fortune 500), Googles (GOOG, Fortune 500), and Toyotas (TM) of the world.

    Karl Gerth teaches modern Chinese history at Oxford University. This article is adapted from his new book, As China Goes, So Goes the World: How Chinese Consumers are Transforming Everything.