Photo shows a sci-fi-themed installation at Maison Hermes on November 28, 2022 in Shanghai, China.
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BEIJING – Wealthier Chinese have been more likely to spend this year, while poorer people have cut back more, McKinsey and Company found in a survey released Thursday.
The disparity contrasts with 2019, before the pandemic, when “there was little difference in spending between the two groups,” McKinsey analysts said. China’s official measure of consumer sentiment fell to an all-time low this year, they noted.
Lockdowns and travel restrictions in China to control Covid outbreaks have become more widespread this year as the more contagious Omicron variant enters the country. A downturn in the real estate market also dragged down 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 spending by 5% or more compared to last year.
Only 14% of that income group said they had significantly reduced their spending.
The more affluent group continues to spend, while the lower-income groups are more hesitant and hold back their spending decisions.
For those with an annual income of more than 85,000 yuan, the trend is reversed. The report says that only 12% increased spending, and 27% decreased.
“The more affluent population is more confident about their personal wealth and future prospects,” McKinsey told CNBC. “They are relatively more confident about future employment and future salary increases. They also typically already have higher savings.”
“Thus, the more affluent group continues to spend, while the lower-income groups are more hesitant and hold off on their spending decisions.”
Across all income categories, a majority, or nearly 60%, reported no change in spending this year. The share of the wealthiest who say they spend more is 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.
Since then, national data on retail sales has declined as major cities such as Beijing and Guangzhou tighten Covid controls.
The share of urban households wanting to save “for a rainy day” rose to 58%, the highest since 2014, according to a McKinsey survey.
In addition to reporting higher savings, more than half of respondents still expect household incomes to increase significantly over the next five years. However, the share has fallen from 59% in 2019 to 54% this year.
More households are getting richer
Looking ahead, McKinsey expects the number of urban households in the low-income category to decline over the next three years, while millions more will enter the wealthier bracket.
Analysts noted that Chinese respondents to a separate survey in August had stronger expectations of a post-pandemic economic recovery than consumers in the US, UK and South Korea.
Only India and Indonesia have a higher share of optimistic consumers than China, the report said.
“Higher income earners are reducing their purchase frequency or changing their preferences in certain categories rather than switching to cheaper brands or products,” the analysts said.
“It’s helped by brands, especially local brands, stepping up their game and offering more widely differentiated products.”
More videos are watched
Chinese consumers are increasingly turning to local brands and live streaming platforms.
Chinese consumers surveyed in August said they spent an average of about two hours a day watching content on short video platforms such as Douyin, the report said.
“The shift over the past 18 months has been from an engagement channel to a truly commerce channel,” said Daniel Zipser, McKinsey senior partner and leader of the Asia consumer and retail practice.
“To be successful in social commerce, it’s not just about having a great streamer, it’s also about having a great product. [but] Having the content to bring it to life,” he said. While local companies can often adapt quickly to new consumer trends, “foreign brands and foreign companies always struggle to have internal approval processes that fast.”