China’s consumers aren’t living up to sales pitch; Spike in bad loans worries retailers in China

China’s consumers aren’t living up to sales pitch

Decelerating investment in housing, infrastructure and manufacturing, is dragging on incomes.

August 28, 2013 @ 10:41 am

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Consumer brands in China are finding their rewards aren’t quite as advertised. Growth in purchases of a wide range of goods has slowed sharply over the past year, and companies ranging from Samsonite to Apple are reporting disappointing Chinese sales figures. Consumers in the world’s second-largest economy will have their day, but the idea they alone can sustain growth looks threadbare.It’s not just premium brands that are reporting slowing revenue growth in the People’s Republic. Retail sales in almost every category are increasing more slowly than they were a year ago. Growth in cosmetics sales has slowed from 15 percent to 10 percent, and knitwear from 18 to 12.5 percent. Only gold and silver jewellery, which has a speculative appeal, has been gaining momentum, with sales up 42 percent year on year in July. Tiffany says its China sales are “especially strong”.

Revenue cannot expand at double-digit rates indefinitely. But growth expectations are important for retailers deciding how much capital to tie up in stocks and new stores. China’s banks are reporting a sharp increase in bad loans to the retail sector, suggesting that some operators overestimated demand. Sportswear maker Li Ning was an early warning of what can happen – it stuffed its retailers with unsaleable stock, and was forced to buy heaps of the stuff back to salvage its brand.

For some products like designer bags and spirits, government curbs on gift-buying are a factor. But that’s not enough to explain the broad slowdown. More likely, decelerating investment in housing, infrastructure and manufacturing, is dragging on incomes. Disposable per capita income for city-dwellers grew an annual 9 percent in the first two quarters of 2013, according to an official survey by the National Bureau of Statistics – compared with a five-year average of 13 percent.

If investment slows, then, so does consumption. That means China can’t rely on consumers to step up and fill the gap if investment levels fall, as eventually they must. It also makes the task of increasing China’s share of consumption in GDP from its low level of 35 percent that bit harder. If China wants consumers to pull their weight, it needs to put more money in their wallets.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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