Chinese urged to spend more and save less

Posted on May 25, 2012

Few temples to conspicuous consumption are as quirky as the Florentia Village, a sprawling “authentic Italian luxury outlet centre” on the outskirts of China’s northern city of Tianjin that boasts its own ersatz Colosseum.

Even on a weekday afternoon, hundreds of shoppers stroll the Italianate lanes of the 60,000m2 outdoor complex with their rows of discount brand outlets selling everything from Prada bags to Puma shoes.

    The “village” is just one of a host of new shopping opportunities that have sprung up across China in recent years, testament to the fast-growing power of the nation’s consumers.

    Yet with China’s economy slowing – to a relatively modest annual rate of 8.1 per cent growth in the first quarter – some observers fret that consumption could be faltering. Retail spending in April was weaker than expected. And while Wen Jiabao, the premier, last week signalled action to shore up growth, the government’s policy focus looks set to be on promoting investment rather than consumption.

    Not everyone is worried. Analysts at Jefferies say state data show China’s retail sector is set to rebound, creating buying opportunities for stock investors. “Our recent channel checks with retailers and retail associations also suggest that retail sales are seeing a gradual recovery,” they said in a report released on Thursday.

    Staff at outlets in Florentia Village, too, insist business is good at the complex, which opened in January 2011.

    On Friday Wang Yongqiang and Tang Ying, a young couple, were delighted to snap up his-and-hers Levi’s at what Ms Tang described as a good discount to prices in central Tianjin. “We do quite a lot of shopping,” Ms Tang says.

    With household incomes still rising, consumption growth is unlikely to fall dramatically, says Andrew Batson, research director at GK Dragonomics.

    Indeed, Mr Batson suggests the present slowdown could promote a much-heralded rebalancing of China’s economy away from reliance on increasingly unproductive investment to a healthier consumption-driven model.

    While the government has long talked of such a shift, the proportion of gross domestic product accounted for by investment actually soared to 46 per cent in 2010, while household consumption’s share of GDP slumped to just 35 per cent.

    This is not because people are failing to spend more – at nearly 8 per cent, Chinese household consumption growth far outstripped the average for developing Asia last decade – but simply because it could not keep pace with GDP.

    Now, says Mr Batson, “rebalancing can come from steady consumption growth and declining investment”.

    Some economists say the government needs to do more to promote this rebalancing in a country where citizens still save a far larger proportion of their incomes than developed economy counterparts.

    Even the enthusiastic shopper Ms Tang and her husband squirrel away more than half of their joint income of around Rmb10,000 a month, they say, for a home of their own, a nicer car and a hoped-for baby. “Chinese love to save money,” says Mr Wang.

    Lower-income consumers also save fiercely. In the village of Wuti in northern Hebei province, house builder Li Moxiang and his farmer wife aim to set aside Rmb20,000 or more a year to help raise their future grandchild – even though stingy state-set interest rates mean such savings are constantly eroded by inflation.

    “We don’t buy much in the way of clothing and other things because we want to put money aside,” Mr Li says.

    A big motivation for such saving is lack of a social security system to cushion Chinese in old age or ill health. Serious illness or accident often spells household bankruptcy. For most rural people, children have to play the role of pension provider.

    In a report this week, the World Bank said fiscal measures to support consumption – including targeted tax cuts, social welfare spending and other social expenditures – should be Beijing’s top priority as it seeks to avert an economic “hard landing”.

    Some economists would like to see mass privatisation to shift wealth out of the dominant and domineering state sector.

    Many Chinese would certainly like the chance to share a little more in the nation’s ever-more conspicuously displayed wealth.

    In the gritty Hebei town of Langfang, migrant worker Duan Tingchun, 34, spends his days cleaning the glass façade of the towering Wanda Plaza, home to an Imax cinema and shops including France’s Carrefour and Uniqlo of Japan.

    Mr Duan makes Rmb160 a day he works – not paid if rain prevents cleaning – and on Friday was preparing for a gruelling bus ride south to the family farm to help bring in a harvest. He would like to spend more, he says, but has no illusions about his own limited ability to boost Chinese consumption. “If you don’t have much money, you can’t consume much,” he says.

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