The FINANCIAL — Chinese consumers still intend to spend more in the coming year than their developed-market counterparts, but they are feeling the impact of the domestic slowdown and the mood has altered, according to the research conducted by The Boston Consulting Group (BCG)’s Center for Consumer and Customer Insight in China.
Spending is down because consumers want to save more, and skepticism about the economy is prevalent. This is heightened in lower-tier cities, where the optimistic sentiment of middle-class and affluent consumers (MACs) has dropped by double digits this year, according to BCG.
With the recent slowdown in China’s previously hyper-fast economic growth, Chinese consumers have become more cautious and less optimistic, reveals the research. While 27 percent of Chinese consumers plan to spend more in 2013, that is an 11 percent drop from last year’s 38 percent. BCG says this drop is driven, in large part, by China’s waning GDP, which fell recently to single digits. Last year, close to half of consumers said that the economy would improve within the next 12 months; this year, the percentage dropped to 38 percent, according to BCG.
“While consumers are tightening their wallets a little, we should not view this as a sign of financial strain. Our research shows that, in fact, very few consumers think they will earn less in the future, nor do they worry about losing their jobs,” said Youchi Kuo, a BCG principal.
Only 22 percent of Chinese consumers said their current savings meets their expectations. The household savings rate in China reached a historic high of 38 percent of disposable income in 2012, versus 23 percent ten years ago, yet consumers still feel this isn’t enough. Consumers are saving more out of concern for supporting their children and elders in a less-than-stable social-welfare system and for home purchases in an era of unprecedented price rises, according to BCG.
BCG says that this short-term dip in optimism and increased levels of saving should not overshadow the much brighter future in which consumerism will still reign in China. The research did not reveal a great deal of pessimism regarding the country’s long-term economic development; only 11 percent of respondents agreed that “the economy will not improve for the next several years.”
And while total spending is down, consumers are becoming more sophisticated shoppers by better optimizing their budgets. A tremendous 80 percent of consumers are buying fewer but higher-quality items. One year ago, shoppers were more likely to save money by trading down to more affordable brands or by cutting brand name consumption altogether. This year, that group is 20 percent smaller. What’s more, the intention to trade up remains at about the same level in 2013 as it was in 2010 and 2011—even among people who plan to cut their spending, according to BCG.
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