China’s consumers continue to spend

Published on
May 14, 2012

Key economic data released last week by Beijing may have disappointed those who watch China’s economy, but it’s unlikely to halt the aggressive expansion plans of retailers and caterers seeking opportunities, particularly in China’s vast surroundings. Retail sales increased 14.1 percent in nominal terms in April, down from 15.2 percent in March and the slowest pace since December 2006. In real terms, retail sales rose 10.7 percent, the slowest since September 2011.

The slower headline data masks a robust local growth story in China. Visits to retail outlets around Beijing revealed concerns with rising prices but also a confidence that wages have kept pace. Workers pointed to wage increases of between 15 and 20 percent in the past 12 months. This figure tallies with figures published by the China Academy of Social Sciences showing in 2011 wages for China’s 300 million migrant workers rose 21 percent.

At the seafood counter in Ito Yokado in Beijing’s Gongti West Street, vendors offer jellyfish at RMB 12.80 per 500 grams (jellyfish heads at RMB 32 per kilogram). The supermarket is currently running specials on plaice at RMB 78 per kilogram and frozen fillets of sole at RMB 21.80 per 500 grams.

“We’re expecting strong demand in the summer time for frozen fillets because they’re more convenient to us especially if you’re having a party,” said one seafood counter attendant. 

China’s consumers may be willing to spend given indicators price increases have been tamed. The other important figure out in April’s economic data was inflation — the consumer price index came in at 3.3 percent, well within the government full-year target of 4 percent inflation for 2012. A government preoccupation works in favor of imports — Beijing has eased restrictions on imports of food particularly in terms of grain and pork, cheaper than local produce and main movers of the CPI indexes. China’s retail sector has plenty of room to grow due to ongoing urbanization and pent-up demand, said Yuan Yue, chairman of Horizon Research, a Beijing-based consulting agency.

Promoting private consumption has become a priority for China’s government, which aims to achieve 8 to 8.5 percent GDP growth in 2012 (it has set 7 percent as the official target), and to that end has set about loosening the Communist Party-assigned quota of loans while also embarking on an unprecedented spate of financial reforms aimed at getting more money to the private sector which generates employment and exports.

Privately-owned SMEs, which also dominate the local aquaculture and seafood sector, generate all of China’s new jobs and most of the economic growth, but the growth rate of investment by these firms slowed to 24 percent from 32 percent a year earlier according to officials. Officials have promised programs to improve access to credit for these companies as well as initiatives to cut small-business taxes and allow SMEs to enter sectors previously reserved for state-owned firms.

A key issue however is the fate of the real estate market. Several interviews revealed a yearning for the days of mega bonuses and real estate parties, before government real estate restrictions came into force in 2011, pushing speculators to the sidelines.

“We used to cater for a few hundred real estate company parties a year,” said Zhang, a maitre d’ at the Seafood Garden, a high-end restaurant off Chaoyang Lu in downtown Beijing. “Our business remains good but not spectacular.”

Investment in residential real estate, which typically accounts for about 15 percent of all China’s fixed asset investment, rose only 4 percent year-over-year in April, down from 15.1 percent increase in March and a 30.2 percent year-over-year increase in 2011. Sales of new homes were down 14.9 percent year-over-year through the first four months of the year (down 13.4 percent in April), developers have pulled back sharply. Government has been limiting loans to property developers and speculators in an effort to tame property prices and deflate a property bubble that threatens long-term economic growth and income equality in China.

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