Business World

Tuesday 17 September 2019

Chinese consumers remain deceptively perky

Retails of the city: A vendor arranges clothing at a store in Xiamen, China. Photo: Qilai Shen/Bloomberg
Retails of the city: A vendor arranges clothing at a store in Xiamen, China. Photo: Qilai Shen/Bloomberg

Christopher Beddor

The shopping spree in China is not all it's cracked up to be. Sales of athletic gear, appliances and the like have been rising robustly despite fiercer economic headwinds. Tax cuts and healthy property prices are helping. Without such support, however, retailers are apt to feel the pinch.

Chinese customers have been the unsung heroes of an otherwise ailing economy. Neither the trade war with the United States nor broader jitters about a slowdown have kept them from buying.

In the first six months of 2019, consumption per person increased 7.5pc on a nominal basis from a year earlier, while retail sales of consumer goods grew 8.4pc, according to official data.

That has boosted the bottom lines of shopkeepers at home and from abroad. Jeweller Tiffany, for instance, reported double-digit growth in China for the second quarter. Haier Smart Home, the Qingado-based maker of refrigerators and washing machines, said its first-half operating revenue rose more than 9pc, while e-commerce giant Alibaba notched up more than 40pc top-line growth in the quarter ending June 30.

The numbers may be deceptively perky, however. Rising consumption is ultimately a function of growing disposable income, which gained 8.8pc in nominal terms in the first half. The figure was flattered by personal income tax cuts, which reduced remittances to the government by 308 billion yuan (€39bn), according to government estimates. That alone added 1.6 percentage points to disposable income gains, estimates Ernan Cui from consultancy Gavekal Dragonomics. What's more, she reckons rising home prices contributed 0.8 percentage points to the first-half consumption figures.

Eventually, shoppers are bound to feel the effect of the prevailing forces hurting China. Without the supplemental support, they may be considerably less lavish. That's a concern for an economy where 60pc of growth was propelled by consumption in the first half.

It also would likely weigh on corporate earnings. KFC owner Yum China, for one, flagged that growth may slow when it reported its latest financial results.

For U.S. companies such as Apple, whose sales in the region have already been dragging and who now face the prospect of tariffs, the pain could be even more intense.

Chinese consumers are like any good shopping deal: available only while supplies last.

Reuters Breakingviews

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