Students of history, and those Americans that bothered to pay attention in high school history class, might remember something in the early 20th century called the Open Door policy. For those of you who did not pay attention, the Open Door policy was a U.S. policy designed to open China up to U.S. and other foreign imports after centuries of trade restrictions.
Guess what? After more than a century, the Door finally seems to be open; Beijing is actually allowing more imports, particularly of consumer goods. The first companies to benefit are Yahoo! (NASDAQ: YHOO) and, not surprisingly, Alibaba (NYSE: BABA). Bloomberg reported that Yahoo Japan’s (OTC: YAHOF) share value increased by 12% after the announcement of an alliance between that company and Alibaba.
The alliance would give Japanese retailers that listed on Alibaba’s super popular Tmall and Tmall Global shopping sites support and lower fees. The alliance reflects a new openness by Beijing to allow in more foreign consumer goods by dismantling as many import barriers as possible, Forbes contributor Doug Young noted. Young predicted that the Yahoo–Alibaba alliance is just the first of many such retail alliances we’ll soon see.
Why Is China Allowing in More Consumer Goods?
The Chinese government is allowing in more consumer goods for a number of reasons:
- To facilitate approval of the Trans-Pacific Partnership, a controversial trade deal; in countries like the U.S. and Canada. The TPP has run into a lot of opposition from critics on both the left and the right in the United States and in Canada. China is not part of the TPP yet, but it would like to be; opening up to e-tail deals could facilitate this.
- To win support among the increasingly affluent but restive Chinese people by providing the populace with more access to more consumer goods. This policy proves the leadership of the Chinese Communist Party understands history -one of the reasons why the Soviet Union collapsed was discontent created by shortages of basic consumer goods. They do not want to repeat the mistakes of their predecessors in Moscow.
- Increasing the flow of consumer goods will increase spending and trade, which will increase the size and scope of the Chinese economy.
- Increased consumer spending will make the Chinese economy more complex and sophisticated.
- Increased access to imported consumer goods will give Chinese an incentive to work harder and make more money, increasing the country’s money supply.
- Increased consumer spending can lower the rate of savings, which can lower the rate of inflation.
- Increased consumer spending would presumably increase sales tax revenues and generate more money for the Chinese government.
This situation naturally presents a tremendous opportunity for American retailers of all shapes and sizes. One company that could certainly benefit is Amazon.com (NASDAQ: AMZN), which already has a store for the sale of American goods on Tmall. Another is eBay (NASDAQ: EBAY), which has suffered from declining sales at its marketplace and could fall further once PayPal spins off later this year.
Other organizations that could benefit could be Netflix, Etsy (NASDAQ: ETSY), Sears (NYSE: SHLD), Staples (NASDAQ: SPLS), Best Buy (NYSE: BB) and Walmart (NYSE: WMT). All of these retailers could get access to the $404 billion Chinese market through alliances with Alibaba and stores on Tmall. Walmart, which already has a presence in China and a working relationship with Alibaba, could be in a great position here. If Walmart.com could become the go-to place for American-made goods in China, that company could be sitting on a gold mine. Another company that could have a role here is Google Inc. (NASDAQ: GOOG), which could expand its Google Marketplace into China.
Naturally, many people will wonder if this could be of benefit to small retailers in the U.S. My answer to that is perhaps if these alliances allow companies like Amazon, Etsy, Walmart and eBay to offer direct sales channels to the Chinese market, Americans and others with products that have wide appeal in China could make a lot of money.
Unfortunately, only time will tell if the Communist Party allows Americans to sell directly to China. My prediction is that it is only a matter of time for that to happen because China’s leaders want U.S. dollars above all else. The door is open, and many people could soon make a lot of money selling directly to the Middle Kingdom.