The first ten months of 2019 showed Chinese consumer spending is still chugging along, with retail growing at a healthy 8.1% (9% if you don’t include cars). This was further reinforced by last week’s Singles’ Day which saw purchases grow by 27% from last year’s festival.
One of the factors driving this consumption growth is just how easy and [arguably] enjoyable it has become to buy things in China. There’s an enormous and entertaining ecommerce ecosystem selling you virtually everything you could possibly imagine, complete with cheap, fast delivery. This has kept traditional bricks & mortar retailers on their toes, forcing them to innovate with interactive experiences; again with cheap, fast delivery for the vast majority who don’t drive to the store. Mobile payments, now adopted by 81.4% of smartphone users (versus 27.5% in the US) make it easier still, and for the 100 million who have already signed up for facial payments, paying is simpler than scratching your chin.
Yet behind this experience and easy payment options, is good old fashioned consumer credit, fuelling much of the spending in China. Between 2011 and 2018 short term consumer loans increased 648% from ¥1.36 trillion to ¥8.81 trillion.
Perhaps even more staggering than the growth, is just how easy it is to obtain this credit. The most popular form of credit – accounting for around two-thirds of lending – are instalment/revolving credit services such as Alibaba’s Huabei. Getting money from Huabei is seamlessly integrated into the Alipay mobile payment app, making it hopelessly endearing and simple for China’s consumers bitten with the consumption bug. By early 2019, Huabei had loaned more than ¥1 trillion ($142.7 billion) in less than four years since launching. It was estimated that at least half of the $38.4 billion of things sold on Alibaba’s platforms for Singles’ Day were bought with Huabei credit. Borrowers pay an annualised rate of up to 16%, depending on their credit profiles.
Most Chinese consumers borrow from multiple sources, with around 30% taking out short-term loans to repay other debts according to a survey by financial lending platform Rong360. Beyond instalment credit services like Huabei, credit cards are doing their bit to keep consumers spending. Singles’ Day transactions just on China Merchants Bank credit cards topped ¥27.2 billion ($3.9 billion) and ICBC hit ¥20 billion ($2.85 billion). By June this year, there were 711 million active credit cards in China – 25 million more than the start of the year. The average consumer spending of Chinese credit-card holders aged between 21 and 30 in 2016 was around $8,820, 39% higher than their average credit line of $6,360.
Overall, around half of consumers who took out consumer loans were born after 1990, with 85% of applications overall from those less than 40 years old. This is fuelling everything from luxury purchases, to health and fitness, to travel: one-third of overseas travellers who booked on Ctrip were born after 1990, and they are spent more on a single trip than those born in the 1980s. Almost a quarter of car buyers in China are under 30, and that figure is expected to rise to roughly 60% by 2025.
In short, the long-held reputation of Chinese consumers being big savers, applies much less to younger generations. Fortunately for those younger folk, most of their more prudent parents and grandparents only have one child to deal with, when they come pleading with cap in hand. Go to Page 2 to see this week’s China news and highlights.