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Why Chinese Consumers Are Tightening Their Belts

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Nov. 20 2020, Updated 2:09 p.m. ET

Chinese consumers

The Chinese economy (FXI) has been shifting from being led by investments to being driven by consumption. China’s consumption accounts for over two-thirds of its annual gross domestic product. As the country’s economic growth stalls, particularly investments, its consumers need to step up and increase their demand to boost the economy. However, the reverse is happening, as indicated by consumer trends during the Chinese New Year.

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Sluggish growth in Chinese consumption

As reported by the Nikkei Asian Review, consumers spent 1.005 trillion yuan during the seven-day holiday break this year. This metric represented 8.5% growth YoY (year-over-year), the lowest growth since 2005. Ting Lu, Nomura’s chief China economist, said, “Despite stimulus measures to boost the consumption of autos and electronic home appliances, we believe household consumption will likely be sluggish, given the quick buildup of household debt, the lackluster income growth outlook amid the economic slowdown and the cooling property sector.”

Holding off consumption

Chinese consumers are holding off their spending due to uncertainty about the future. China’s automotive sales (TSLA) (NIO) have fallen for the past several months, and they fell 2.76% YoY to 28.08 million units last year, marking their first annual decline since 1990. Additionally, the country’s cooling property market is having ripple effects on other sectors.

China’s vast consumer market is the reason for investors’ high expectations from Chinese companies such as Baidu (BIDU), Tencent Holdings (TCEHY), Tencent Music (TME), Alibaba (BABA), HUYA (HUYA), Bilibili (BILI), Uxin (UXIN), and Weibo (WB).

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