Photographer: Qilai Shen/Bloomberg

Chinese Shoppers Are Flush With Hidden Income and Ready to Spend

  • Government-backed study says disposable income underestimated
  • Nielsen consumer confidence data highest in more than 2 years

Chinese consumers may have a lot more cash at their disposal than previously thought -- and they’re ready to flash it.

That’s the upshot of two items throwing fresh light on the outlook for consumer spending, a key metric in China’s much-vaunted shift from an investment- and export-led economy to one more based on people buying things like holidays, clothing and cell-phones.

Official survey-based disposable income data could have underestimated citizens’ true spending power by as much as 20 percent, according to research by the government-backed Chinese Academy of Social Sciences in Beijing, That’s because the official sampling isn’t good enough to reflect the affluence households have gained through investment returns, CASS says.

And households are the most optimistic they’ve been in more than two years, a private consumer confidence report released Tuesday 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."

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.

Read more on the rise of China’s new economy titans

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. The challenge for policy makers led by President Xi Jinping now is to keep disposable income rising -- as they’ve pledged to do -- even while they’re trying to deflate property-market bubbles and crimp the amount of leverage during the longer-term slowdown of the world’s second-largest economy.

Wage Growth

Success isn’t automatic. As China faces stiffer wage competition from its neighbors, wage growth is moderating. Growth of median per-capita disposable income decelerated to 6.7 percent in the first quarter, down from 8.3 percent last year and slower than GDP expansion for the first time since the National Bureau of Statistics began releasing a gauge covering both rural and urban households in March 2014.

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.

"Poorer people, such as those depending on a living allowance, need to let others know they’re short of money, while those in possession of properties, savings and securities are reluctant to reveal the size of their wealth," Zhao said.

At CASS, Zhao creates an estimate of disposable income using not survey data, but accounts that follow the flow of money within the sectors of the economy, such as salary data, or the interest and investment returns offered to retail investors. That creates a significantly different picture to what the surveyed households say about their own finances.

Willing to Spend

And households already report a bullish outlook. Based on their view of their own finances, job prospects and their willingness to spend, Nielsen Holdings Plc’s Consumer Confidence Index rose to 110 in the first quarter of 2017, 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 fueling the urge to part with cash.

"People are aiming at purchasing high-end goods and services, and this trend will further stimulate spending intentions," said Vishal Bali, managing director of Nielsen China in Shanghai. Even though the economy is slowing down, the growth of the consumer as a powerful force on the world stage "shows little sign of abating," he said.

— With assistance by Yinan Zhao

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