The Not-So-Mighty Chinese Consumer
By Aaron Back
Nov. 13, 2014 10:53 p.m. ET
Judging by Alibaba’s blowout “Singles Day” sale this week, one could be forgiven for thinking all is well with the Chinese consumer. In fact, evidence is stacking up that shopping carts are increasingly bare.
The troubling implication is that China’s resilient spenders are succumbing to an economic downturn, which until recently has been largely confined to property and heavy industrial activity. Declining investment in these areas was bound to eventually feed through, as people working in those industries earn less. Falling home prices add to the sense of anxiety.
Gauging Chinese retail sales is difficult. Official retail sales data have slowed, but are still showing low double digit growth. These figures are flawed, however, because they include certain government and wholesales purchases, while excluding services such as haircuts.
Alternate readings are hardly encouraging. Nielsen estimates that total sales in China of fast-moving consumer goods, including things like food and toiletries, rose just 3% from a year earlier in the three months to September, compared with double digit rates in 2012.
Wal-Mart said Thursday China comparable-store sales fell 2.3% from a year earlier in the three months to October, due to “government austerity, reduction in gift card sales, and deflation in key categories such as dry grocery, liquor and consumables.” One of China’s largest hotel operators, China Lodging, said this week it wouldn’t meet its full-year revenue target because of macro headwinds.
Unilever said last month that China sales fell around 20% in the third quarter, due to a “sharp market slowdown” that led to destocking by merchants. Colgate Palmolive ’s Asia sales rose just 1% in the quarter, with gains in India offsetting declines in the greater China región.
SABMiller , which with a Chinese partner owns best-selling Snow beer, said China lager volumes declined in the six months to September, blaming cool summer weather. Macau casinos reported that declines in VIP gambling spread for the first time to mass market visitors last month. Car sales have slowed too.
Luxury good sales have been feeling the pinch in China for some time due to the government’s anticorruption campaign. But rather than just affecting bribes masked as gift giving, the campaign may be having a broader effect on more prosaic forms of consumption. Employees at state-owned enterprises simply have less cash to spend as they lose perks such as allowances for personal expenditures and gift cards that often came at holiday time.
Moreover, the broad economic downturn is filtering down to consumers by hitting incomes. Official data show inflation-adjusted urban disposable income rose 6.9% from a year earlier in the first nine months of the year, down only slightly from 7% for all last year, but a substantial slowdown compared with 9.6% growth in 2012.
Whether this is the bottom of the consumer cycle or the start of something worse is likely tied to the fate of the property market, in which much of China’s household wealth is stored. Property sales showed tentative signs of finding a bottom in October after restrictions on apartment purchases were relaxed, but prices are still falling. Any real-estate recovery is likely to be weak.
The same goes for consumption.
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