Customers queue to pay at Costco's checkout during the store's launch in Shanghai. Photo: AFP

Images of a stunned Costco employee went viral earlier this week. Pleading for calm, she was engulfed by a stampede of shoppers at her counter for freshly cooked rotisserie chickens.

Similar scenes were captured inside the megastore as the American hypermarket chain launched its first venture in China on Tuesday.

Giant teddy bears flew off the shelves while electronic products disappeared into customer carts in a matter of minutes as if charmed by a Harry Potter spell.

Outside the outlet in suburban Shanghai, it was gridlock before the giant retailer closed the doors.

“Due to overcrowding in the market, and in order to provide you with a better shopping experience, Costco will temporarily close on the afternoon of August 27. “Please avoid coming,” it said in an online statement.

Retail sales

By sheer coincidence, the State Council issued a raft of new measures on the same day in a move to kickstart slowing retail sales when it convened for a routine cabinet-level meeting.

Top of the agenda was the dip in consumer spending as the world’s second-largest economy slows.

Fuelled by a toxic mix of growing personal debt, tighter borrowing and the never-ending trade war with the United States, Beijing is looking for a long-term fix. At the same time, President Xi Jinping’s administration is in the process of realigning China’s economic model to high-tech manufacturing and services.

Finding the right balance will be crucial after the State Council rolled out a policy document to upgrade rundown malls, improve pedestrian shopping areas and encourage e-commerce companies to work with factories to customize products.

A Costco employee at the counter for cooked rotisserie chickens calls for calm at the store’s launch in Shanghai. Photo: AFP

Night markets and turning old factories and sports centers into superstores, or entertainment complexes, were also included in the blueprint to stimulate spending.

Removing the restrictions on car sales, which were down for the 13th consecutive month in July, was another highlight.

“China has come to a critical period of upgrading and transformation,” Dong Ximiao, a researcher at the National Institution for Finance and Development, a state-run think tank, said.

“The domestic consumer market is entering a new era driven by technology, high quality and services. The generation born in the 1980s and 1990s has become the main force of consumption, and those born in the 2000s will also become new consumption drivers,” Dong added.

In the meantime, the economy is in trouble, casting a giant shadow over global growth. Neighboring Asian nations are also suffering, such as Singapore.

Factory output

A breakdown of the numbers released from National Bureau of Statistics showed that China’s gross domestic product, or GDP, growth was 6.2% in the second quarter, which was the slowest pace since the early 1990s.

Factory output also dived. In July, it plummeted to its lowest level in 17 years while retail sales suffered as shoppers started to feel the pinch. Sluggish imports added to a bleak picture after being squeezed by the domestic downturn and the Sino-US conflict.

“China data weakness will likely be more visible in August and September, and policymakers will likely lean toward more intensive easing,” analysts at the Bank of America Merrill Lynch said in a note on Monday.

Against this backdrop, is the country’s middle class of nearly 400 million, according to the National Bureau of Statistics, or households earning between 25,000 yuan (US$3,640) to 250,000 yuan ($36,400) a year.

An independent report compiled by investment banking company UBS and PricewaterhouseCoopers, or PwC, narrowed it down to 109 million consumers with an annual income of between $50,000 to $500,000.

Yet as consumption has increased so has personal debt. The Bank for International Settlements calculated that individual borrowers owed $6.8 trillion by the end of last year, a jump from $4 trillion three years earlier. Home mortgages took up a big chunk of change.

“China’s household leverage often flies under the radar, but it should not,” a Moody’s Investors Service report stated in December.

Still, there is overall growth in ramping up retail sales as opposed to the old model of massive infrastructure spending, which tended to mire local governments in mountains of debt.

It will be even more crucial in the second half of 2019 and the years ahead, pumping new life into the economy.

‘Economic growth’

“Consumption remains the main driver, contributing 60.1% of China’s economic growth in the first half,” Tang Jianwei, the chief researcher at the Financial Research Center of the Bank of Communications, told the state-run China Daily. “The key is to use measures to strengthen the weak links and improve people’s incomes. There’s certainly a lot of room for growth in consumption.

“[But] first, incomes need to grow faster. Second, household consumption is rising and demand for high-quality goods and services is growing. However, there is still insufficient domestically made high-end products and services to meet demand,” Tang added.

Global brands have rushed into this space as Beijing continues to reiterate the “opening up and reform” mantra. But at times, they have ended up being mired in a maze of red tape or failed to adapt to Chinese culture.

“We can’t let the CEOs of European companies in China set up their businesses on a foundation of hope that reform will come,” Carlo Diego D’Andrea, the chairman of the European Union Chamber of Commerce in Shanghai, said at the end of last year.

Breaking down the barriers would certainly help invigorate consumption and not just in giant teddy bears and freshly cooked rotisserie chickens.

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