It’s been a relatively lean few months for positive news about China’s economy, but things appear to be starting to thaw. Many of the world’s big hitters have recently made upbeat statements about China’s prospects including IMF, HSBC, Bank of America, Morgan Stanley, Goldman Sachs, Credit Suisse and Deloitte among others.
The bullish outlook has helped push up the price of Chinese shares and foreign stocks with high exposure to China. In markets like the US, share price changes directly impact consumer sentiment – not surprising given more than half of American households own stocks. In China, although stock price changes may indirectly effect consumer spending down the line, the average Zhou on the street is unlikely to change his/her behaviour as a result. We saw this during the 122% rise in share prices on the Shanghai Exchange in 2014, and the subsequent meltdown in 2015, with both barely altering consumer sentiment and retail sales. Back then, just 6% of Chinese households owned stocks.
There is one investment class, however, that directly impacts Chinese consumer sentiment: property. An estimated 90% of Chinese families are believed to own a home, 80% without a mortgage. Chinese love property: it is tangible, much easier to understand than other asset classes, historically stable and has proven to be a boon over the past generation. Although we hear about China’s enormous online funds such as Yu’e Bao, Chinese consumers’ property holdings pales all other investments.
Digging a little deeper, property ownership isn’t just the realm of baby boomers like in other markets. An HSBC study in 2017 found that 70% of Chinese millennials (aged 19-36 years) own a home. Mexico was second-ranked in the study with 46%, 31% in the UK, 28% in Australia and just over a third in the US & Canada. Given millennials are the driving force behind China’s consumption, it is little surprise that when house prices rise, they feel more inclined to spend. But like everything in China and many other countries, house prices aren’t evenly dispersed geographically, influencing purchase behaviour differently from city to city. Here’s an infographic we did in 2017 that illustrates how much more it costs to buy property in one city versus another.
Given property’s influence on Chinese spending, retailers will be happy to see some green shoots in China’s real estate. 30% more houses were sold in Tier 1 cities in the first quarter of 2019 than a year earlier. Also, after contracting in the first two months of 2019, project sales of nine major developers rose 20% in March from a year earlier indicating the consumers are feeling both more confident, and wealthier.
One of the powerful new drivers for property growth in China are females. In 2014, women accounted for just 30% of homebuyers; last year they were 48% as many young female homeowners seek security in real estate rather than marriage. About 47% of single women over the age of 30 have bought apartments. If you’re hoping to keep abreast of consumer sentiment, watching house prices and whose buying them will likely help.
In other news, to help tap into Chinese consumers’ amassed property wealth, China Skinny has partnered with the great team at ASX-listed eCargo to offer grounded and actionable workshops to refine China sales and marketing strategies. The workshops call on China Skinny’s unrivalled insights and holistic view of the market, with eCargo’s success delivering sales and marketing execution across multiple tiers of Chinese cities. We offer three types of workshops to meet your specific needs and budget. More info here. Go to Page 2 to see this week’s China news and highlights.