The impact of the spectacular rise and fall of China’s stocks is anyone’s guess. It would appear that China is imploding if you read some news reports – stories of a weaking China attracts readers in some countries. Discuss it with Chinese consumers buying food for their kids in high end supermarkets, and they will shrug it off, unphased; China has made it through bigger economic challenges.
Of course some consumers will be feeling less confident, but it is unlikely to have the same impact on consumer spending as a crash would in markets like America. In January this year, following a 122% rise in the Shanghai Composite Index over 12-months, retail sales grew at their slowest rate in five years. At the time, just 6% of Chinese households owned stocks versus 55% of Americans. The latest spike would have drawn a few more in with Beijing’s encouragement, but as a whole, fewer Chinese consumers gamble on stocks – China’s reputation for being conservative with their high savings is well deserved. Although consumer investors make up a large portion of the owners of China’s stocks, their share of the overall market value is estimated to be 5% or less.
China needs healthy capital markets to finance the ongoing development of its economy, and will need a different approach to what we have seen recently. Nevertheless, the biggest impact on consumption growth in both the US and China is wage growth, which has been rising faster than GDP in China. IMF is keeping its pre-crash China GDP forecasts from April, as it believes China’s stock exchanges are so disconnected to the wider economy, and are small relative to the overall economy.
The rate of growth across many categories is slowing in China, but that was happening before the market meltdown. We expect Chinese consumers, particularly those born post-80s and 90s, will carry on in the consumer groove. Consumption will continue increasing in areas such as premium food and beverage, tourism and experiences, health and wellbeing, affordable and some niche fashion, overseas investments and anything to do with the precious only child – food, clothing and education – just look at the 50% growth that Lego has experienced in China over the past two years, despite counterfeits costing a quarter of the price.
China’s affluent and middle class base will continue to grow -an extra million USD millionaires came on board in China last year, despite the reports of doom and gloom. One loser will be state media who have been cheerleading the stock market, further eroding trust in traditional media and driving even more consumers to objective digital channels. Go to Page 2 to see this week’s China news and highlights.