Spending power underestimated
According to research by the government-backed Chinese Academy of Social Sciences in Beijing, the Chinese citizen’s true spending power may have been underestimated by as much as 20%. Households are the most optimistic they’ve been in more than two years, a private consumer confidence report released showed.
“We’re richer than the data suggests, and the potential for spending is bigger than it looks,” said Zhao Wen, a labor economics analyst leading the research. “Consumption will continue to be an important driver for economic expansion in the future.”
Consumer spending clear
The shift is reflected by the new champions of the nation’s economy: not industrial giants but retail and services innovators. Tencent Holdings Ltd and Alibaba Group Holding Ltd have become China’s largest corporations in the past year.
- Consumption spending, including government outlays, accounted for more than three quarters of economic expansion in the first three months of 2017, as growth accelerated for the second straight quarter.
Wage Growth hard to track
The NBS pays a rotating sample of around 160,000 households across the nation to report their daily income and spending habits, generating quarterly data on how much they can spend. Yet persuading people to be honest about their wealth is no easy task, and it’s almost impossible to track how much people earn through investment of stocks and properties.
- For poorer people, such as those depending on a living allowance, they need to let others know they are short of money.
- On the other hand, those in possession of properties, savings and securities are reluctant to reveal the size of their wealth.
At CASS, Zhao Wen creates an estimate of disposable income using not survey data, but accounts that follow the flow of money within the sectors of the economy, creating a significantly different picture to what the surveyed households say about their own finances.
Willingness to spend
Nielsen Holdings Plc’s Consumer Confident Index (indicator to measure consumer behaviour through spending activity vs saving) rose to 110 up from 108 in the fourth quarter last year and the highest reading since the third quarter of 2014.
- The willingness to spend component is at its highest level since at least 2009.
- For now, positive growth data, rising property prices and expanding credit volumes are fuelling the urge for these Chinese citizens to part with their saved up cash.
According to Vishal Bali, people are aiming at purchasing high-end goods and services, and the trend will further stimulate spending intentions. Vishal, who is the managing director of Nielsen China in Shanghai, goes on to say that even though the economy is slowing down, the growth of the consumer as a powerful force on the world stage “shows little signs of abating”.