Chinese Consumers Are Apparently Tightening Their Purse Strings

There are some negative signs for China’s huge consumer market which can be bad news for the Chinese economy which is already facing a potential slow down.

According to analysts, the individual consumer in the second largest economy of the world continue to be financially well and hearty, many of them are pulling the strings of their purses over concerns about an uncertain future.

“A decline in consumption is the biggest risk, because everyone already knows about the decline in investment, everyone also knows about the trade tensions,” said Jian Guang Shen, chief economist at JD Digits. This is a spin-off company of the Chinese e-commerce company JD.com. he was formally the chief economist at Mizuho Securities Asia.

“Everyone’s confidence, confidence in this year’s situation, has declined, (and) consumption was immediately impacted,” Shen said in Mandarin to a television channel. “In the next couple of months, consumption will continue to slow,” he added.

In October, growth in retail sector dropped to 8.6 per cent. In contrast, there was a general tendency of 10 per cent or still higher growth.

“There’s an anxiety the economy going forward may not do as well.”-Daniel Zipser, senior partner at McKinsey

In the last two months, there has been a drop of over 11.5 per cent in auto sales in the largest car market of the world. And according to official figures available in the Wind Info database, this resulted in the year-to-date growth to turn negative for the first time in over six years.

“There’s an anxiety the economy going forward may not do as well,” Daniel Zipser, senior partner at consultancy firm McKinsey, said. “The person still has the money to buy a new car but will wait.”

There has been a slowdown in the Chinese economy this year as the government has attempted to reduce the dependency on growth furled by debt. This has created trouble for businesses in obtaining financing for growth and expansion. The problem has been compounded by the uncertainty because of the escalating trade tensions with the United States.

Confidence has also been affected by a drop in Chinese stocks and a weakening currency. In terms of performance this year, the Shanghai and Shenzhen composite were considered to be amongst the worst in the world.

Additionally, the shadow lending market or the peer to peer lending market has been clamped down upon by the Chinese authorities and many Chinese consumers have been hit by this. There have been scams in this economic sector where platforms that were created ot link lenders with borrowers decamped with funds.

The pressure of home mortgages is bearing down on an increasing number of Chinese consumers. The current household debt in China is more than 100 per cent of annual income which is higher than that of the U.S., according to McKinsey’s Zipser.

However these pressures have not prevented the Chinese consumers from engaging in some spending. Compared to the 4.6 per cent of the US, China still recorded 8.6 per cent growth in retail sales for the month of October.

According to analysts, there is a rising trend among Chinese consumers to spend more on travel, healthcare and dining out and have been attracted to new sale strategies such as those that combine augmented reality and facial recognition. Brick-and-mortar retailers who are offline are also being helped by this trend.

“We think the Chinese consumer is generally healthy,” Yu said. “It’s not so much about showing what you have. People are really interested in living well.”

(Adapted from CNBC.com)

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Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized

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