Born to spend
Updated: 2007-09-17 17:37
Waiting for a friend in Shenzhen's plush Kingglory Plaza, Chen Jing, 25, admires her new red Nokia mobile phone. Complete with 3G and MP3 features, the phone cost just over 3,000 yuan (US$400) -- Chen's entire monthly wage.
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"It looks really good," she says.
Extravagant spending perhaps, but female consumers like Chen are spurring much-needed growth in Chinese consumption and helping offset the country's high savings rate, a source of tension with its trading partners.
"Urban women consumers will be spending much of their hard-earned cash on personal travel and related cultural and recreational activities, dining out, shopping, as well as buying cars and pursuing urban leisure lifestyles," Yuwa Heidrick-Wong, economic adviser to MasterCard International, said.
Their spending will help determine which foreign brands succeed in China. Credit Suisse cites luxury goods firms LVMH , Christian Dior and Valentino among its top picks along with watch maker Swatch Group as well as Nokia and Coca-Cola Co .
China's retail sales rose 15.7 percent in the first eight months of this year, reflecting rising incomes and urbanisation.Household consumption, however, is the lowest of any major economy. It fell to 36.4 percent of gross domestic product in 2006 from 37.7 percent in 2005, when the comparable figures for the United States and India were 70 percent and 61 percent. The downtrend is now new: in 1990 China's ratio was 49 percent.
That makes China too dependent on investment, which risks overheating, and exports, whose share of GDP has doubled in the past decade to 40 percent -- more than twice that of the United States and Japan.
If China consumed more, imports would rise, narrowing a ballooning trade surplus. Reduced reliance on exports, moreover, would make the economy less vulnerable to global economic shocks.
"Exports depend on the health of your trading partners: if your trading partners go down, you go down," said Chris Leung, China economist at DBS Bank in Hong Kong.
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