Jan 20, 2016
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On China's Main Streets - a need to keep shoppers shopping

Jan 20, 2016

More potential bad news for the global economic outlook: Chinese shoppers, who largely propped up growth last year, are likely to trim spending this year; dining out less often, delaying smartphone upgrades and cutting out impulse buys.

This will concern policymakers in the world's second-largest economy who are already juggling with volatile stock markets and flat-lining wage growth.

China's economy grew at its slowest rate in a quarter of a century last year, and analysts credited consumers with keeping growth at least on track with government targets.

"Chinese consumers came to the rescue in 2015," wrote Tom Rafferty, analyst at the Economist Intelligence Unit in Beijing. "Their spending helped offset weakness in industry and investment, the traditional drivers of the Chinese economy."

There's no guarantee they'll do the same again this year.

A survey by ANZ bank published on Wednesday showed Chinese consumer confidence at a record low this month, and data from U.S.-based research group's China Beige Book showed fourth-quarter job growth and wage gains at 4-year lows.

Those surveys were echoed by shoppers canvassed by Reuters in Shanghai, who said they would keep their spending in check and more likely cut back.


A man who gave his surname as Zhou said he and his girlfriend spent around 70,000 yuan ($10,642) last year dining out and another 40,000 yuan on clothes and accessories. He said they plan to cut back by nearly a third this year given the economy. "We'll cook more at home. I may replace my electronic products like mobile phones less frequently," he said.

"I think the growth of my income cannot catch up with surging prices," said a 30-year-old shopper who gave her family name Zheng as she browsed through a store's mugs and bed sheets. "These things aren't necessary. I might control myself a little bit ... try not to go shopping too often."

Harder hit may be China's swelling ranks of the elderly, who are seeing health costs eating into disposable income.

A 55-year old retired woman who declined to give her name told Reuters she was having to spend most of her money on air filters to combat urban air pollution. "I'd rather save money in case I'm sick and have to go to hospital," she said.

Caught in the squeeze, too, are China's many small retailers, consumers themselves, who are entirely dependent on domestic demand for their survival.

A mobile phone store owner in Shanghai who gave his name as Dong said sales declined sharply in the second half of last year. "It's strange and I don't really know why. Maybe because the stock market crashed. I think it will be worse in 2016."


Economists also warned that consumers will have less money to spend if, as seems likely, wages flatten and unemployment begins to rise this year.

Also, Chinese buying power, at home and abroad, may weaken as the recent depreciation of the yuan could impact prices of the many imported products sold in China.

"We expect consumer spending growth to ease this year as wage increases moderate and the risk remains that the weakness in industry could spill over more forcefully into consumption," wrote Louis Kuijs, head of Asia Economics at Oxford Economics in Hong Kong.

China's National Bureau of Statistics said consumption's share of GDP growth jumped more than 15 percentage points to above two-thirds last year, helping offset a slowdown in the vast manufacturing sector, though there is no official breakdown yet of how much of that consumption was fuelled by government spending as opposed to shoppers.

In a bid to boost private consumption, China's cabinet, the State Council, said in November it would encourage financial institutions to accept a broader range of collateral for extending loans to "lifestyle-related businesses" such as retail, health, travel and sport.


Retail sales of consumer goods rose by more than 11 percent year on year to over $400 billion, with online shopping platform Taobao generating almost $4 billion in one hour alone during a promotional event in November.

And there are signs of that resilience continuing.

The ANZ consumer sentiment survey showed an increase in respondents who reckon now is a good time to buy big-ticket items. New car sales, which grew at a sluggish 4.7 percent last year, are expected to rise 6 percent this year, according to the China Association of Automobile Manufacturers.

"Business was bad in the past year and it's impossible to go up," said a dress shop owner in Shanghai. "The rich will buy luxuries, the poor will save their money."

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