China’s Consumption Story: A More Personal Perspective by Andy Rothman, Matthews Asia

Over the course of the year, we’ve presented you with a lot of data in support of our view that China is the world’s best consumption story. Urban income, for example, rose 137% over the past decade, and by about 7% this year. Today, we would like to share a more personal perspective on Chinese consumers.

Earlier this month, we interviewed half a dozen business-people in Chengdu—a city of about 14 million in Sichuan Province, and one of the gateways to China’s western region. Our discussions with five entrepreneurs and one state-owned enterprise (SOE) manager provide an anecdotal, personal perspective on how a few Chinese view their standard of living.

7.25 out of 10

In separate interviews, we asked each of our participants to score their personal economy, on a scale of zero (terrible) to 10 (perfect). Despite the fact that five of the six participants work in parts of the economy facing significant headwinds—only one works in the largest and fastest-growing consumption and services part—this group remains fairly upbeat about their personal economy. Their average score: 7.25 out of 10.

The biggest surprise came from an auto dealer who had just spent an hour explaining how dismal the auto business has been this year. Demand is flat while the market is flooded with supply. His brand new dealership can’t sell enough cars, and in any event, he loses a couple thousand dollars on every car he does sell. Even worse, he doesn’t yet have a big enough customer base to support the maintenance department, which generates most dealership profits. Nonetheless, he scored his personal economy an 8 out of 10, and explained that over the past 15 years, he had earned enough money at his previous car dealership to be able to wait comfortably for his new business to gain traction.

Worries about Work-Life Balance

In a separate interview, a woman with a suffering shoe export business told us that demand in Russia and Europe—her top markets—has been down. Counterfeits have also plagued her online sales in China. She gave her personal economy a score of 6, although she said that her most serious concern is her work-life balance. “I work too much, and don’t have enough time for the rest of my life,” she said. She added that she and her banker husband own three apartments in China and are helping their daughter buy a larger home in Hong Kong.

After Earthquakes, Money Seems Less Important

  • The sole state-sector worker in our group of participants also gave his personal economy a 6. His company produces construction materials, another sector troubled by slower demand growth and overcapacity, and the workforce has been cut. When we met him, his wife was in a hospital recovering from surgery. But, he offered some perspective on his situation. “In Chengdu, people are quite optimistic. Over the last decade, we’ve survived two serious earthquakes in the area, so we are less focused on money and more satisfied with our lives.”
  • Another of our participants is a wood furniture and flooring manufacturer with 1,500 workers. She gave her personal economy an 8. “I don’t expect my income to go up as business is tough. But I want to change my lifestyle. Right now I work too much, but I have enough money that in the future I can focus more on improving my knowledge.”
  • The manager of the Chengdu branch of a finance company told us, “I’m satisfied with the contribution I make to my company, and my income can support a good life here,” he said, and gave his personal economy a score of 8 out of 10.
  • One man’s company produces small parts for a foreign automaker. He reported that his order book is down this year, leaving him to rank his personal economy a 7.5. He sounded upbeat, however. “We are a lucky generation, doing so much better than our parents. But I’m only giving it a 7.5 because I want to do even better.”

Optimism about Their Kids’ Futures

Of the five interviewees who are parents, all said they believe their kids’ standard of living will surpass their own. But two of them expressed concern about whether a better material life would translate into a more joyful life. The auto parts maker noted, “My grandma was very poor, but she found inner peace. I know my daughter will have a richer life, but it is hard to say if she will be happier.” The finance company manager shared that concern for his 16-year-old daughter. ”Her generation’s living standard will certainly be higher, but with everything so comfortable for them, will they be tough enough to improve the world?”

The car dealer had a more definitive response. “My daughter just graduated from U.C. Berkeley, so of course she will have a better life than me!”

Health, a Top Concern

Despite facing difficult business conditions, our group said they didn’t worry too much about the future. Several said they just mainly wished for good health for their parents and children and for good opportunities for their children’s education.

Our car dealer was surprisingly calm about the future. “My business is losing money, but I’ve saved enough and I enjoy my life.”

Andy Rothman
Investment Strategist
Matthews Asia

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China Government Spending