Pictured is a science fiction-themed installation at Maison Hermes in Shanghai, China, November 28, 2022.
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BEIJING — Wealthier Chinese were more likely to spend this year, while poorer people cut spending even more, McKinsey and Company found in a survey released Thursday.
The divergence contrasts with 2019, before the pandemic, when “there was little differentiation in spending between the two groups,” McKinsey analysts said. They noted that an official measure of consumer sentiment in China had fallen to an all-time low this year.
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Lockdowns and travel restrictions to control Covid outbreaks in China have become widespread this year as the more contagious variant of Omicron entered the country. A slump in the real estate market also weighed on the economy.
However, more than a quarter – or 26% – of people with an annual household income above 345,000 yuan ($49,286) said they had increased their spending by 5% or more compared to last year, according to the survey.
Only 14% of this income group said they had significantly reduced their spending.
The wealthiest group continues to spend, while the lower income groups are more hesitant and make their spending decisions
The trend reversed for those whose incomes are much lower, below 85,000 yuan per year. Only 12% said they had increased their spending, while 27% reduced their spending, according to the report.
“The wealthiest population is more confident about their personal wealth and future prospects,” McKinsey told CNBC in a statement. “They remain relatively more confident that they will be able to keep their jobs in the future and anticipate salary increases in the future. They also usually already have higher savings.”
“So the more affluent group continues to spend, while the lower income groups are more hesitant in making their spending decisions.”
Across all income categories, the majority – about 60% – reported no change in their spending this year. The share of the wealthiest who said they spent more was also ten percentage points lower than the 36% reported in 2019.
McKinsey’s survey of more than 6,700 Chinese consumers was conducted in July.
In the months that followed, national retail sales data plummeted as Covid controls tightened in major cities like Beijing and Guangzhou.
The share of urban households willing to save “for a rainy day” rose to 58% – its highest level since 2014, according to the McKinsey survey.
In addition to reporting higher savings, more than half of respondents still expect their household income to increase significantly over the next five years. However, the share has fallen from 59% in 2019 to 54% this year.
More and more households are getting richer
Looking ahead, McKinsey expects the number of urban households in the lowest income category to decline over the next three years, while millions more will move into a more affluent group.
Analysts noted that a separate survey in August found Chinese respondents had much stronger expectations for a post-pandemic economic rebound than consumers in the United States, United Kingdom or South Korea.
Only India and Indonesia had a larger share of optimistic consumers than China, according to the report.
“High-income people are reducing their frequency of purchases or changing their preferences in certain categories, rather than switching to cheaper brands or products,” the analysts said.
“This is facilitated by brands, especially national brands, upping their game and offering more broadly differentiated products.”
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Chinese consumers are increasingly turning to local brands and live streaming platforms.
Chinese consumers surveyed in August said they spent an average of almost two hours a day watching content on short-form video platforms such as Douyin, according to the report.
“The transition that’s happened over the past 18 months is from an engagement channel to a true commerce channel,” said Daniel Zipser, senior partner at McKinsey and head of the consumer and commerce practice. retail in Asia.
“To be successful in social commerce, it’s not just about having a great streamer, but also having a great product, [but] to have the content to bring that to life,” he said. While local businesses can often adapt quickly to new consumer trends, “foreign brands and foreign companies always struggle given that internal approval processes are so fast.
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