In case you haven’t heard, sales for Single’s Day last Wednesday hit a whopping $14.3 billion. That’s 60% year-on-year growth – a similar rate to 2014, but from a much larger base. The day epitomised Chinese consumers’ dedication to online shopping, with none more committed than a lady in Chongqing who dramatically injured her husband as she thrust for her smartphone to browse the sales.
While many folks will be celebrating the grand display of consumerism, China’s consumption rates are still much lower than their Western counterparts. However, events such as Single’s Day illustrate how this is changing, signalled by consumption being the fastest rising segment of China’s economy – 60% of GDP growth last half – and its biggest hope.
It should be no surprise that there is still plenty of juice in the consumption tank – consumers’ incomes continue to rise at double figure rates, and very few Chinese have frightening mortgages to drag them down if times get tougher. Household debt is just 12% of GDP, while it’s 95% in the US. Just 5% of Chinese aged 15 and over have a mortgage, standing at 16% of GDP, versus 120% in the US. Whilst some of those stats gloss over the fact that many family and friends provide untracked loans in China, they are typically less rigid than commercial banks in enforcing repayments.
China’s high saving and low credit rates have caused many policy makers headaches, as they realise that consumption is the key to sustainable growth. This is reflected in the latest consumption-focused Five Year Plan, and many recent Government policies. Even Premier Li Keqiang is advocating fewer restrictions on overseas purchases to give consumers more options.
Whilst Government support is absolutely vital for any sector to grow in China, much of the spending is being driven by market initiatives such as Alibaba’s alluring Single’s Day Festival. With such promotions, the ease of paying for things is also energising sales. China used to be a cash society. Just five years ago, 80% of online shopping was paid for by cash on delivery. Now that figure is estimated to be well under 20%. Yet, they aren’t paying with credit cards – some estimates put ownership as low as 8.2% – they’re shopping using systems that have been developed to appeal to China’s unique habits and preferences.
Alipay is the most popular platform, which processed an incredible 85,900 transactions per second at its peak on Single’s Day. WeChat Payments is also becoming an incredibly popular payment tool, making up the majority of the 200 million users on Tencent’s payment systems, helped by initiatives such as Lucky Money which among other things, allows simple splitting of restaurant bills which is so relevant in China’s lunch and dinner sharing culture. Go to Page 2 to see this week’s China news and highlights.