Mon, Oct 25, 1999 page18

• Chinese just won't spend

  Although there is no shortage of wealth in China, the government is having a difficult time getting the masses to take their money out of the bank and go shopping with it

  • Paul Mooney 慕亦?
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  Despite an imminent 20 percent tax on bank interest income aimed at coaxing Chinese to pull some of their earnings from local banks, and thereby hopefully boosting falling consumption, most families are continuing to lug their extra cash to the bank rather than the department store.

  A recent survey by the State Statistical Bureau showed that 61 percent of respondents said the interest tax won't affect their tendency to save. The reason, says the official Xinhua News Agency, is that eight out of 10 of those surveyed are not satisfied with their income over the past 12 months.

  It's not that people don't have spare cash. China's savings rate exceeds 40 percent, and there is more than US$725 billion sitting idle in personal savings accounts. With prices declining for months on end as salaries rise, it's no wonder the government is getting nervous.

  

  The problem is that consumer confidence has been hit hard by last year's layoffs that put millions of people out of work. There is also the rising concern about the loss of socialist perks that many once relied on before the iron rice bowl was smashed: nearly free medical care, housing and education. Chinese are concerned about the lack of any social security net and so for the time being are intent upon building up more of a cushion at their local banks, despite government efforts to pry some of the money away.

  A recent survey published by the Far Eastern Economic Review of China's rising upper middle class showed that Chinese continue to have their feet planted firmly on the ground, despite rising incomes and savings. When asked what purchases they intended to make over the next year, houses, education and other practical purchases topped the list -- way ahead of luxury items.

  Government efforts to fuel spending by offering home and automobile mortgages have not had the desired effect so far due to the traditional Chinese aversion for debt. And even those who may be interested in taking on some debt may find getting a loan a bit difficult. One friend walked into a bank last week to see about a loan to buy a new Shanghai Buick, which has a hefty price tag of 347,000 Renminbi. She came out dejected. In addition to the normal request for income information and other supporting documents, the bank also wanted to see tax receipts. But like the vast majority of Chinese, my friend grossly underreports her income as less than 800 Renminbi -- the cut-off level for paying individual taxes -- and so seemingly does not earn enough to swing a loan, despite actually being quite comfortable.

  

  Chinese performers dressed as imported mobile phones dance for a crowd in a Beijing shopping mall in this September 12 file photo. Despite the government's best efforts to boost consumer spending, surveys show that houses, education and other practical purchases top the shopping list for most Chinese -- way ahead of luxury items

  PHOTO: REUTERS

  But then, for many of the 15,000 people who ordered these flashy Buicks so far this year, scratching up the funds does not appear to be an issue. Another friend who walked into a Buick showroom last week for a look around watched as one buyer plunked down several hundred thousand renminbi in 100 notes. Most of these 15,000 cars were paid for with cash, say sources.

  At the same time, purveyors of luxury items continue to pour into China's major cities. Chanel opened in the Palace Hotel last week, joining Hermes, Louis Vuitton, Cartier, Christian Dior and a bevy of other top designer names. While the shops aren't exactly crowded with buyers, some have been here for years and must be doing business -- the Palace is said to charge the highest rents in China, and that probably means it ranks up there along with New York, Tokyo and London.

  But that said, I would be hard-pressed to identify who's doing the buying (foreigners are almost never seen shopping in any of these expensive shops, which seem to mainly cater to wealthy locals) or where the money's coming from.

  A group of 16 of Italy's top name brands set up shop earlier this year in the new Swissotel in Dalian, including Missoni, Versace, and Ermenegildo Zegna. Armando Branchini, who works for the Altagamma franchise that groups 25 of the best-known Italian companies, was bullish on this northeastern city. However, while Branchini says that the bulk of the shopping center's customers are locals, he is at a loss to explain how a city in which monthly incomes fall short of the price of an silk tie can generate enough business to make the venture a success.

  "In this country, there is income which is unexplainable," he explains. "I would never have expected so much purchasing power, but I believe there are many people in a position to spend a lot of money."

  Branchini pointed to the Ermenegildo Zegna outlet located in the nearby Furama Hotel, which opened two years earlier. Zegna's second shop in Dalian is its 18th venture in China. "For a company with prices like these to already have a second shop in Dalian is pretty astonishing," he says.

  Meanwhile, the central bank reported this month that consumer spending had begun to pick up in the third quarter. However, much of this appears to be due to seasonal factors: an increase in the number of young people starting school in the fall, the week-long holiday for the October 1 national day celebration which saw people taking off on extended vacations, and increased investment in the stock market, the result of the government's attempt to pump up the markets and in turn the economy. A third reason cited was greater spending on homes as banks increased the number of mortgagees available. Still, this new spending failed to stop deflation, which marked its 23rd consecutive month in September.

  While there are obviously a lot of people around China with money for expensive homes, cars and luxury items, the answer to boosting consumption lies with the masses. Unless the government can do something to make people less nervous about their futures -- i.e. dealing with the structural issues that are worrying the have-nots -- the slump in spending will be around for quite a while to come.
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