Mainland Chinese tighten purse strings amid gloomy times
Government faces huge challenge to encourage consumers to open their wallets as the household savings rate hits a record high of 38 per cent
A trip to the United States was on the top of this year's holiday plans for Zhang Jun and his wife, but after reviewing their budget, the two are now likely to shelve those plans.
Zhang, a 40-year-old legal counsel in a foreign energy company based in Beijing, said business was not going well at the moment, partly due to the gloomy economic situation.
"We're likely to cancel the trip. I feel it's necessary to save some money and get prepared for the worst," he said.
Apart from cutting the travel budget, Zhang has trimmed shopping bills and no longer visits the imported food supermarket in the basement of his office building where he used to shop every fortnight.
"Now I go to ordinary supermarkets instead, which are much cheaper," he said.
Like Zhang, many mainland consumers have become more cautious about their spending as they feel the chill of the economic slowdown. Their response may cut the contribution of household spending to economic growth and see the country's already high household savings rate rise further this year.
"Chinese consumers are holding on to their wallets a bit tighter than before," said Jeff Walters, a partner of Boston Consulting Group. "This is driven in large part by China's waning [gross domestic product]. Recent rises in housing prices and uncertainty over the property market are also making people more hesitant about spending."
The consulting company conducted a survey of more than 1,000 mainland consumers from top- to fourth-tier cities earlier this year and found that only 27 per cent planned to increase their discretionary spending, compared with 38 per cent a year ago. Nearly six in 10 respondents said they wanted to save more, while 29 per cent expected to earn less in future. Both figures are higher than last year's.
"The household savings rate in China is likely to reach a new high this year," said Walters, adding that only 22 per cent of the respondents said their current savings met their expectations.
The ratio, which is calculated by dividing household savings by disposable income, has been climbing steadily on the mainland over the past decade. Last year, the figure hit a historic high of 38 per cent, compared with 23 per cent 10 years ago.
The People's Bank of China said last month that yuan deposits in the financial system broke the threshold of 100 trillion yuan (HK$125 trillion) at the end of June. Household savings account for as much as 44 per cent of the deposits.
The overly high savings rate has long been a headache for the government, which is seeking to turn the country from an investment- and export-driven economy into a consumption-driven one. In 2009 and 2010, Beijing initiated a series of stimulus policies from "home appliances to rural areas" and "trade old appliances for new ones" to subsidies for buying environmentally friendly vehicles and appliances to cope with the global financial crisis. But all the schemes were short-term and expired last year.
Zhang Yulin, a researcher at the Ministry of Commerce, estimated that without the backup provided by government policies, retail sales growth could decline to around 13 per cent this year from 14.3 per cent last year. "Short-term stimulus policies often have short-term effects and that is why the government tends not to launch such one-off measures," she said.
Zhang said the household savings rate was high partly because frugality was embedded in the mainland culture, especially among the middle-aged and elderly, who were also in charge of a family's finances. But there was still a lot the government could do. "Increasing incomes, especially in rural areas, improving the social welfare system and providing consumers with safe and good-quality products and services are all top concerns."
As to the short-term dip in optimism among consumers, Zhang said this should not overshadow the bright future of the country's consumption market.
"Chinese people are still among the most optimistic shoppers in the world," she said.