Gap is betting big on China, announcing plans to triple its retail stores there by the end of 2012, reports the Associated Press. But in doing so, the chain will directly compete with its own Chinese suppliers, which for years have been sharpening their teeth making cheap knockoffs of the popular clothing.
Gap is not the only global brand to jump on what they hope will emerge as the next massive consumer class. Apple, Nike, Gucci, Louis Vuitton and Walmart have all positioned themselves to profit from China's nouveau riche. Despite these expectations, the New York Times reports that China’s consumer spending has actually plummeted in the last decade as a portion of the overall economy, to about 35 percent of gross domestic product, from about 45 percent - the lowest percentage for any big economy anywhere in the world.
The remarkable growth the nation has seen has not translated into fruits for middle class families, but rather state-run banks, government-backed corporations and the affluent few with connections, says Carl E. Walter, a former JP Morgan executive who is co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” Worse yet, low-wage workers who make the clothing sold in stores like Gap simply can’t afford the finished goods. Marketplace’s Kai Ryssdal visited a new Gap store in Shanghai recently; the most striking thing he found about the store was how empty it was. Sales of global “brands” come mainly in the form of the counterfeits and knockoffs sold at busy outdoor markets.
The New York Times suggests the “state capitalism” that’s fueled much of China’s growth must be dismantled before ordinary Chinese citizens will start feeling flush enough to buy Gap’s ‘nostalgic’ 1969 jeans - even the made-for-China version. Chinese Premier Wen Jiabao asserts that the government is ready to make some of those changes. Until then, hedge your bets.