China's Urban Consumers More Optimistic Even Amid Slowing Growth

  • RFi Urban Financial Sentiment Index swings back from pessimism
  • Majority report minimal damage to net worth from stocks plunge

Strength in real estate and labor markets helped consumers in China’s biggest cities shrug off last year’s slowdown, according to a new survey based on 12,000 interviews.

RFi Group’s Urban Financial Sentiment Index rose to 101 in the second half of 2015, up from 92.5 in the first half. Readings over 100 show consumers say they’re optimistic about their financial positions, while those below indicate pessimism, according to the Sydney-based market research firm and financial data provider. The gauge was above 105 in late 2013 and early 2014.

The findings show consumers remained resilient late last year even amid a $5 trillion stock plunge, yuan devaluation, and economic growth that slowed from 7 percent in the first two quarters of 2015 to 6.9 percent in the third and finally a six-year low of 6.8 percent. Such optimism is good news for policy makers working to shift toward a more consumer-led economy.

"Consumers remain fairly sheltered from developments in the industrial sectors of the economy," RFi Senior Economist Amit Khan wrote in the report published Tuesday. "There is little correlation with the massive swings in Chinese stocks over the last 18 months."

The survey is based on interviews with consumers dating back to April 2013 in Beijing, Guangzhou, Tianjin, Shanghai and Shenzhen, and combines data on intentions to spend, save and borrow over the coming year. RFi plans to update the gauge every six months.

Khan cited property prices and labor markets as primary reasons consumers grew more optimistic. "In the tier one cities such as Beijing, Shenzhen and Shanghai we’ve seen a strong recovery in price growth, particularly in 2015," he said.

The majority of those interviewed said that the stock market collapse, in which shares plunged by almost half from June to August, had a minimal impact on their net worth. Inflation was the biggest concern, with far fewer worried about unemployment. Thirty percent of the respondents said they planned to spend more in the next 12 months.

Economic Transition

The findings come as China presses on with plans to transition its economy away from exports and investment to a more sustainable model based on services and domestic consumption. Household consumption accounts for 36.5 percent of China’s gross domestic product, compared with 68.6 percent in the U.S., World Bank data show.

"Consumption is contributing far more to growth than it has previously," Khan said. "There’s definitely a shift occurring in the economy." Khan also cited strength in car sales, retail sales, rail travel, international travel, as well as surging sales of movie tickets and Apple iPhones.

Extremely high household saving rates have been seen as an obstacle to the transformation — the World Bank says the savings rate in China stands at 50 percent of GDP compared to about 18 percent in the U.S. However, the report says: "The intention to save more is down over the last three years."

The report underscored the significance of young consumers, who say they want to spend more than older generations. For Generation Y, those born from the early 1980s to the early 2000s, 37 percent said they plan to increase spending over the next 12 months, compared with 25 percent of baby boomers.

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