Chinese Consumers Reluctant to Spend

Western companies have been counting on China to deliver solid economic growth numbers, but the country's consumers are big savers, with two-thirds of city residents holding on to at least one-quarter of their income.

August 26, 2010

LONDON - According to a survey conducted by the Economist Intelligence Unit (EIU), while Western companies have been counting on China to deliver solid economic growth numbers, its country's consumers have been reluctant to increase their domestic spending, the Financial Times reports.

"Chinese consumers, both urban and rural, although optimistic about the future, remain big savers and cautious spenders, despite their government??s concerted effort to stimulate domestic demand," the EIU said.

Despite the equivalent of a $589 billion stimulus package and other incentives to help stimulate sales of cars and appliances last year, "concerns about healthcare, education and retirement continue to restrain consumption".

The EIU revealed that while 91 percent of respondents said they were optimistic about the future, even wealthy urbanites save a high percentage of their income.

Two-thirds of Shanghai residents save a quarter or more of their income, with one-third saving more than one-third. In less developed cities, the figures are even higher.

Among the survey's rural respondents who do not own a refrigerator, only 40 percent plan to purchase one, with one-third of those saying it would be a "distant" purchase. "This suggests that more needs to be done to address their broader concerns about the future before programs aimed at stimulating consumer demand can be more effective," the EIU said.

Despite being frugal, Chinese consumers are also increasingly demanding and very brand-conscious.

"We are seeing more maturity in consumer behavior," said Yuval Atsmon, retail expert at McKinsey in Shanghai. "Consumers are not just swayed by the big brand names, they are willing to pay for products that are better, but are also weighing the different dimensions [of a purchase] in a more mature way."

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