Whilst some of the data coming out of China shows a slowing economy, the recent record breaking sales numbers from Singles Day (a whopping 91.2 billion yuan) mirrors an extremely affluent consumer. Let’s not forget that China is the second largest economy in the world and has a growing affluent population. Its consumer spending will therefore have an impact on the balance of the Chinese economy in that it will become more self-sustaining and less reliant on exports. Such domestic consumer demand is a key barometer whilst the Government focuses on the domestic market and exports – this, in turn, mitigates any immediate weakening of the currency.
Jason Stather-Lodge, CEO of OCM Wealth Management says that whilst recent Chinese trade flows continue to be worse than hoped for, this should mean the nation’s leaders will inject more support for domestic demand. This is good news for the move to consumerism and should take pressure off any devaluation talk:
“The data out of China just a few weeks ago confirmed that the growth rate is still running at an annualised 6.9% - whilst this figure represents a 6 year low, it was greater than anticipated and therefore not the meltdown to circa 5% and below that many were predicting in the market rout towards the middle of August. Within these numbers, we continue to see a movement towards growth in consumer spending and services and a slowdown in industrial spending for the 43rd month in a row. While this does nothing to support commodity prices, it further supports our faith in the consumer services and banking sectors.
Furthermore, the Chief Economist of the People’s Bank of China (PBOC) recently stated that the recovery in property sales, coupled to the easing of monetary policy should support growth. What his statement confirmed, is that our view of China is not as bad as others have been led believe. Data confirms that the Chinese consumer is robust as is spending on services, which, alongside the strengthening in residential building, should help stimulate the economy once more. The PBOC stated that they expect their own stimulatory measures to the economy to start kicking in, whilst the impact of these on the real economy has a time lag of approximately nine months. Add this to the recent estimates from the International Monetary Fund (IMF) that the global outlook should be positive for China overall, then we expect the sentiment on China to recover at a modest pace in the coming months.
As ever, we are looking at a host of data, but this move to consumerism and the building blocks to getting there, are key for how we monitor the Chinese economy, where we think that the likelihood is more a soft landing than an economic capitulation.”
Optimism about Chinese consumers remains rife in some quarters, even after this summer's devaluation of China's currency, a tanking stock market and slowing economic growth. Goldman Sachs predicted in a recent report that China's flourishing middle class and their hearty spending will buoy its economy and benefit the wider world.