Analysis: China consumers counter economy gloom with travel boom
Ads by Google
China's Boom Set To Bust?Shocking Truth about China's Boom. Get a Free Copy of the Report Now!
90
1 2 next | single page
High rise buildings are seen in a haze in Hong Kong (Philippe Lopez, AFP/Getty Images)
Ads by Google
Griffith Future Students
Let's Talk About Your Study Options One on One Q&A Sessions. Book Now!
Open Universities
Study Online with Top Universities & TAFEs. Enrolments Close Aug 12th!
Nick Edwards
Reuters
5:22 p.m. CDT, August 12, 2012
BEIJING (Reuters) - Soaring numbers of Chinese tourists packed onto flights out of the country is a sure sign that a fast-growing consumer class of around 130 million is not worried that the likely slowest year of economic growth since 1999 will sap their spending power.
Nearly 39 million mainlanders left China on overseas trips in the first half of 2012, roughly double on five years ago and evidence that a powerful consumer force - envisaged by the top leadership as the engine of economic expansion in a generation to come - may be bulking up faster than thought.
The question for investors is if a burgeoning bourgeoisie is now big enough to fully offset the economic impact of faltering foreign demand evident in data last week, when undershoots in July new bank lending, export, import and industrial output growth prompted analysts to start slicing into GDP forecasts.
Paul French, Shanghai-based chief China strategist at market intelligence consultancy Mintel, says the purest view of the domestic economy's health always comes from the consumer.
"If consumers feel good about things they'll spend. If they don't feel good they'll stop," he told Reuters. "Travel is a good indicator because people are travelling more and they are consuming a lot when they travel abroad."
Investors, facing world growth slowing to levels economists define as marking a global recession, are anxious for any sign that critical consumer mass may have already arrived in China.
Consumer spending in China has comfortably enjoyed double-digit growth for a decade, while exports have slowed to become a net drag on the economy in 2011 and in the first half of 2012.
Retail sales rose 13.1 percent year on year in July. Adjust for inflation and it was the second best month of the year.
But that's not been enough to arrest six straight quarters of slowdown, with the latest Reuters poll forecasting economic growth to slide to 8 percent in 2012 from 9.2 percent in 2011.
While well below the 10 percent average of the last 30 years and a level that has previously prompted urgent action to create jobs, 8 percent remains above Beijing's 7.5 percent target.
Meanwhile the labor market appears tight, with data showing the ratio of vacancies to workers near its highest in 10 years.
STRONGER, FASTER
Evidence that consumers are rapidly getting stronger comes from the Geneva-based Digital Luxury Group, which reckons China's travel market is already worth some $232 billion.
Its new World Luxury Index China Hotels report says Chinese travelers made 70 million overseas trips in 2011 to be pampered at spa resorts in Bali, to shop in Dubai, Paris and London, and to spend in Singapore and Hong Kong.
International Air Travel Association chief executive, Tony Tyler, says airlines will see an extra one billion travelers in a decade if average annual incomes in China hit $15,000.
Part of the proof is in the building going on. China, IATA says, plans to build 56 new airports nationwide before the end of 2016, with a further 16 relocated and 91 being expanded.
Chinese carriers made about half of all the $7.9 billion in profits earned by the global airline industry in 2011, according to IATA, which expects international traffic growth of 8-9 percent from China in the five years to 2015.
A Beijing-backed World Bank report envisages per capita income rising to $16,000 by 2030 from about $5,000 now, with two thirds of economic activity forecast to come from domestic consumption against less than 50 percent now.
CONSUMER CUSHION
Copyright © 2012, Reuters
A shift to the domestic market, leveraging China's 1.3 billion-strong population, would cushion the economy from huge falls in foreign demand that Europe's debt crisis is causing, barely three years on from the trade shock it suffered in the 2008-09 global financial turmoil.
An emerging urban middle class has made grocery shopping the engine of domestic retail sales growth, taking in 41 percent of all retail spending in China which analysts at Citi reckon will be up 55 percent up over five years to $600 billion in 2012.
Ads by Google
Annual double digit wage rises over the last decade - the government has decreed minimum wages rise at least 13 percent in the five years to 2015 - have helped China create what brokerage CLSA says is "the world's best consumption story".
But while workers in the world's second largest economy are earning more, they lag well behind those of the United States.
Average annual wages in the state-owned firms which dominate economic output were 42,452 yuan ($6,700) in 2011 and just 24,556 yuan in the private sector which creates some 75 percent of the country's jobs. The U.S. average wage was $39,959 in 2010, according to the latest data available.
China's wealthy elite, however, have generated a whole new market for the world's luxury personal goods makers, estimated to be worth $25 billion a year now and likely to leapfrog Japan and the United States to the $28 billion top spot by 2015.
It indicates a consumer market presently polarized between the super rich and a middle-class with modest discretionary spending strength, but growing rapidly in size and affluence.
It is one reason why Yolanda Fernandez Lommen, head of the economics unit at the Asian Development Bank's China mission, says a self-sustaining consumer class is some way off.
"We consider that 10-15 percent of the population shows a consumption pattern that is consistent with the type that would be regarded as a solid domestic driver of growth," she said.
"In general, economies where consumption plays a meaningful role as a driver of growth entail a wide middle class that on average comprises about 70-80 percent of the population."
AFFLUENCE ARRIVING
China officially classed 51 percent of its citizens as urban dwellers in 2011, but that includes some 230 million rural migrant workers who generally do poorly paid jobs in cities, lack residency rights in them and have very little to spend.
Only deep structural reforms will turn those migrant workers into fully-fledged urban consumers, Fernandez Lommen said.
Analysts at consultancy, McKinsey, say affluence is arriving faster than many economists anticipate, forecasting a giant leap by 2020 based on annual surveys it has carried out since 2005.
By then China will have 167 million "mainstream" consumer households - those with annual disposable income of between $16,000 and $34,000 - more than 10 times the 14 million, or 6 percent, who currently fit that definition.
There will also be 120 million households with $6,000-$15,999 of spending power, according to McKinsey.
Analysts at Nomura point out that domestic consumption contributed 4.5 percentage points of the 7.8 percent growth in China in the first half of 2012.
All of which implies consumer strength underpinning activity - and the confidence Mintel's French says his clients have in the spending power of China's shoppers at home and overseas.
"The only thing we're seeing slowdown in is some softening in the higher end numbers for luxury goods. But the reason for that is because we have got unparalleled amounts of arbitrage going on from the Chinese going abroad and shopping," he said.
(Editing by Simon Cameron-Moore)
Copyright © 2012, Reuters
Chinese Economics Thread
- Thread starter Norfolk
- Start date
AssassinsMace
Lieutenant General
Remember that story a while back of how China's rich wanted to leave China? 39 million Chinese traveled overseas in the first half of this year alone. Have we heard of any defections or pleas for asylum from these 39 million who have the opportunity?
Ironic for the democratic West that their leaders have to legitimize their rule just like communists do. Maybe because China is still a developing country the leaders have nothing else but to concentrate on growing the economy. But in the West, they just paint everyone else having it worse as a mark to say how well they're doing as leaders. Which ones do you think are more in trouble? Do you know what skinheads are beyond the hate they represent? They are the failures who can't live up to the standard of white superiority. These people are angry because they see others that shouldn't be passing them by. When you see stories about how the Chinese rich would rather live in the US, that's aimed at the domestic audience to say even though the average joe citizen may see things going bad at home, don't complain about it because the elite in China would throw it all away to trade places with them. That's how crummy the Chinese have it while the poorest of Americans have something that the richest of the rich in China don't. That's how they keep their masses from rioting. That's why the arguments have gone beyond just dollars because a good portion of Americans think China is the top economy in the world. That's why they were bashing China before the Olympics ever started. China was the West's main competition. They don't want people getting the idea that China's success in the Olympics was a reflection of how superior of a society China had compared to theirs. So they make it sound like children are kidnapped from their families never to see them again to gain skills in in something they don't want to do in the first place. All Chinese athletes have miserable lives because they don't do what they do because they choose it but because government chooses it for them.
Ironic for the democratic West that their leaders have to legitimize their rule just like communists do. Maybe because China is still a developing country the leaders have nothing else but to concentrate on growing the economy. But in the West, they just paint everyone else having it worse as a mark to say how well they're doing as leaders. Which ones do you think are more in trouble? Do you know what skinheads are beyond the hate they represent? They are the failures who can't live up to the standard of white superiority. These people are angry because they see others that shouldn't be passing them by. When you see stories about how the Chinese rich would rather live in the US, that's aimed at the domestic audience to say even though the average joe citizen may see things going bad at home, don't complain about it because the elite in China would throw it all away to trade places with them. That's how crummy the Chinese have it while the poorest of Americans have something that the richest of the rich in China don't. That's how they keep their masses from rioting. That's why the arguments have gone beyond just dollars because a good portion of Americans think China is the top economy in the world. That's why they were bashing China before the Olympics ever started. China was the West's main competition. They don't want people getting the idea that China's success in the Olympics was a reflection of how superior of a society China had compared to theirs. So they make it sound like children are kidnapped from their families never to see them again to gain skills in in something they don't want to do in the first place. All Chinese athletes have miserable lives because they don't do what they do because they choose it but because government chooses it for them.
Last edited:
Equation
Lieutenant General
Same old dooms day drama about China's decline...with the same end result at 8% GDP growth rate...different day by different author.
given the chance most immigrant whether chinese/india prefer living in US, canada or other western nation. and if you ask most chinese student here prefer find a job in US, they move back to china only if they have hard time to find a job or chance of making substantial $$$ in their home country(but this is less likely, and the miniority).
as for labor cost and western company move to other country. usually its the low-end stuff, textile, shoes etc etc.
solarz
Brigadier
The minority?
Of the dozen or so Chinese classmates my wife had, only 2 of them remained in Canada. All the rest returned to China.
What you don't seem to understand is that most of the new generation of students come from wealthy families, and they have a much better future in China than here.
This is why the idea that wealthy Chinese want to leave China is bunk. Sure there's a lot of them purchasing homes and getting citizenship in Canada and US, but all of their businesses and work are still in China. To them, North America is cottage country.
yes and most wealth kids don't study hard like student who actually got here with their own hard work. goto US university most foreginer student want to stay in US if they can find a jobs.
the fact they are getting US/canada citizenship already say something. its their back up plan, they might want to retire or have their kids growup in US or other reasons etc etc. 2 of my uncle and my older cusin bought the canada investment residency, they still has factory in china, but most their asset and their family are living in canada. their reason they want their kids and family live in canada or US. and they certainly prefer the environement here.
ask any chinese given the chance would they want to stay in US, and we already know most likely answer. the fact you and other members on this forum live in western country already indicate this is true for most immigrant, otherwise you will be living in china rather than US/canada. heck i have investment in china too, but my family and home are here in the state.
solarz
Brigadier
There is no doubt that for some people, myself included, staying in North America is the better choice. However, that doesn't mean we represent a trend, or is even a majority.
As I have pointed out, and which you acknowledged, the wealthy Chinese certainly do not want to work in a new country. Here, they have none of the connections and resources that they have in China. North America is their vacation and retirement plan, which makes sense because the pace of life in China is absolutely hectic compared to here.
What does this imply for the economy? Well, there is some brain and capital drain, but considering the size of China, it is negligible.
The investment of wealthy Chinese is not always welcome either, especially since they tend to invest in real estate and not in businesses (which they know nothing about over here). This means rising real estate prices and lots of locals complaining about unable to afford to home ownership.
Furthermore, most of the consumption by these Chinese ex-pats will be focused on Chinese exports. A 100k luxury car is a lot of money, but it is dwarfed by their daily living costs: buying chinese grocery, eating out at chinese restaurants, buying chinese furniture, buying chinese clothing, visiting China via a chinese airline, etc. Meanwhile, they're taking advantage of the free canadian health care all the while paying very little taxes (they're retired, remember?).