What Will Keep the Chinese Consumer Strong?
Chinese shoppers are splurging again. What will keep them going?
By Jacky Wong
Chinese shoppers are splurging again. The question is: What will keep them going?
China’s consumer confidence has reached a high since Nielsen started compiling the index in 2005. Luxury goods, in particular, are back in vogue. Exports of Swiss watches to China and Hong Kong have jumped 30% from a year ago in January, after growing 10% last year. Luxury car sales increased 18% in 2017, according to Euromonitor. Prices of moutai, a high-end liquor common at Chinese business dinners, have almost doubled since the beginning of 2016. High rollers in the gambling hub Macau have placed 27% more bets in 2017 than a year ago. China’s box office for the seven-day Lunar New Year holiday this year has surged more than 60% year over year, according to online ticketing platform Maoyan.
Moutai is moving again. Prices of the high-end liquor common at Chinese business dinners have almost doubled since the beginning of 2016. Photo: Qilai Shen/Bloomberg News
Beijing’s nationwide anticorruption drive, which drove luxury spending to a halt just three years ago, has faded. That coincided with a rebound in property prices, Chinese consumers’ main source of wealth. According to Deutsche Bank, the housing boom has added 86 trillion yuan ($13.5 trillion) to the total value of residential properties in the past two years. And unlike previous cycles, the gains aren’t concentrated in the biggest cities such as Shanghai and Beijing but have spread to smaller cities. People in these so-called tier-two and tier-three cities have made more money from their houses on paper last year than from their wages, according to Deutsche.
That brings risks. While the government is unlikely to let the property market crash, it needs to let steam out of the market, given the worryingly high level of debt linked to the real-estate sector, both among developers and, increasingly, home buyers. Another risk: Higher rates in the U.S. could spark outflows from China’s economy again, necessitating a renewed clampdown on moving money across borders.
Who among the luxury-industrial complex is most vulnerable? Casino operators in Macau, especially those that rely on high-spending VIPs such as Wynn Macau. Any efforts by Beijing to clamp down on money outflows to the gambling hub, which sits outside the mainland’s capital controls, could deal a blow to those operators.
Investors may do better to stick with companies that cater to China’s rising middle class, instead of the ultrarich—such as Brilliance China, an auto maker that sells BMW cars in the country, or South Korea’s Amorepacific, which owns cosmetics brands that are popular in China.
The health of the Chinese consumer is strong. That is a good thing. But a complicated one.
0 comments:
Publicar un comentario