Most analysts now accept that Chinese consumer spending has remained robust through the downturn with only some slight blips. However, some argue that consumers are trading down to cheaper products. This doesn’t appear to be always the case. Following the recent spate of food safety scares, many people are still trading up regardless of price. One example is soy sauce. In a recent interview, Yuzaburo Mogi, CEO of the Kikkoman soy sauce empire, claimed that sales were growing rapidly in China despite Kikkoman products being five times as expensive as the host of rival competing brands. He is considering expanding capacity at his China factories.
Everyone wants a piece of the China consumption story, not least those firms who’ve been almost entirely export-based and are now in a slump. I’ve been surprised by how many CEOs of export-oriented apparel manufacturing firms have approached me about establishing retail networks. The problem is that, while it makes sense to sell locally, they have no retail brand; 99.9% of shoppers have never heard of these firms even though they wear "imported" brands sporting fancy labels made by them.
With the downturn in export orders in southern China, perhaps change is in the offing? That’s the way I read the excellent new book from Paul Midler, Poorly Made in China: An Insider’s Account of the Tactics Behind China’s Production Game. In the new exports orders-lite environment perhaps there will be a rebalancing of power in the relationship between Chinese manufacturers and Western sourcers – where the sourcers are reticent to complain about quality problems to keep their relationship with the factory. With capacity in abundance, manufacturers are more willing to accommodate sourcers’ demands in order to keep the increasingly illusive orders. A change in the ways things are done in southern China regarding quality standards might be seriously possible at last.
Retail sales continue to grow but not necessarily at the country’s leading chain retailers (think Gome, Suning, Wumart, Hualian, et al). The non-food specialists in the retail sector’s top 10 all saw year-on-year sales decline in the fourth quarter of 2008. Overall, the top 10 were down nearly 8% despite growth in the retail sector as a whole. Why? Well, it seems the niches are proliferating and the chains are losing their grip. For instance, Best Buy, Apple and other niche electronics retailers are chipping away market share from the likes of Gome and Suning. This is yet more evidence that China’s retail landscape is becoming ever more varied and competitive.
Sales are ticking along but still the government feels more needs to be done in the name of "stimulus." We started out with the rural appliances discount scheme and then we got vouchers, and all the while there was precious little debate about whether stimulus gimmicks are really necessary. Now, though, the people are speaking. Where vouchers have been trialed, notably Hangzhou, approximately 90% have been used for everyday items in supermarkets or convenience stores. In phase two of the program in Hangzhou, at best only 32% of people receiving vouchers actually used them. Even worse, many said the vouchers were tantamount to price hikes in disguise.
The two best new buzzwords to pass across my desk recently started in Hong Kong but are spreading to the mainland. First up are the gong nam (literally "tram men" in Cantonese) describing those withdrawn Hong Kong males who appear uninterested in women and sex, seem to prefer working long hours, studying for MBAs and playing video games. Then there are the gong nui, another Cantonese phrase indicating women who suffer from "princess syndrome" – they are obsessed with money, labels and beauty products, and insist (despite weighing less than 50 kilograms) that they desperately need to lose weight.