Chinese Consumers Learn To Spend Rationally Without 'Downgrading' Consumption

Riding on the success of explosive economic growth in China in the past four decades, long lines of Chinese consumers waiting outside of luxury shopping centers have become an iconic scene globally.

MOSCOW (UrduPoint News / Sputnik - 29th August, 2018) Riding on the success of explosive economic growth in China in the past four decades, long lines of Chinese consumers waiting outside of luxury shopping centers have become an iconic scene globally.

Chinese people no longer have to "eat bitterness," as rising personal income led to "consumption upgrades" allowing them to enjoy a more comfortable lifestyle.

After China's economic growth slowed in the recent years, coupled with pressure from the Trump administration's hostile trade policies, the sentiment of a "consumption downgrade" has become a popular topic on Chinese social media, as consumers express their growing uncertainty about the country's economic outlook.

Chinese media started to carry attention grabbing stories describing how young Chinese consumers decided to cut their spending on luxury products such as designer handbags and forgo newly developed lifestyle that includes gym memberships and Starbucks coffee.

For many Chinese millennials born in the 1980s and 1990s, however, the change in spending habits is more of a sign of maturity and rationality than "consumption downgrade."

"The expensive foreign brands do not attract me as much as they used to, because I have already tried them and understood what they can offer," Xu Zheng, a 28-year-old graphic designer in Beijing, told Sputnik.

Coming from the city of Chengde, located about 140 miles northeast of Beijing, Xu had to share a bedroom divided by wood cardboards with several other people to save on rent when he first moved to the Chinese capital eight years ago. With a monthly salary of $750 at the time, spending $100 a month on rent allowed him to save money for his favorite hobby: photography.

"My major was graphics design in college. After learning how to correct and edit photos on computers, I became very interested in photography. I always wanted to buy a full-frame DSLR camera. But my dream camera, the Sony Alpha A900, cost about $2,000. To save money for the camera, I ate $1 cheap Chinese fast food every day for more than a month," he said.

Fortunately, Xu's investment into photography paid off. His unique sense on aesthetics as a graphics designer made his photographs stand out. Geared with the superior image quality of his new DSLR, Xu started to take on private assignments to shoot weddings and other commercial projects. As a result, his monthly income doubled to $1,500.

"I decided to buy the first Apple product of my life - a 13-inch MacBook Pro. I was amazed by the speed and excellent build quality of the laptop. It became a workhorse for my photography assignments," he said.

As his income continued to grow, Xu developed a new obsession: Timberland Boots from the United States.

"I felt the $200 for a pair of boots was worth it, because I could wear it for a long time. Then I couldn't stop myself. I bought at least one pair every 2-3 months. I have over a dozen pairs of Timberland Boots now. But after having most of the models and collections, I understood that I had enough. Unless there's a very special edition coming out, I would not buy a new pair of Timberland Boots," he said.

Xu explained that he has a similar mentality today when it comes to other expensive consumer products such as Apple's iPhones.

"It's the same situation with other products, as I don't have to buy a new one each year. For example, I will not buy a new iPhone every year, because I already have one that still works well for my needs. As I grow older and have more experiences, I don't have the same kind of impulse as before I tried those products. Now, the itinerary updates of a processor in the iPhone can no longer attract me," he said.

Nevertheless, Xu added that when he feels it is time to buy a new smartphone, his first choice is still the iPhone because he enjoys the user experience.

When income growth slows amid sluggish economic expansion, rising cost on basic necessities in life, such as housing, could have a strong impact on a person's consumption habits.

Joecy Zhang, a 30-year-old Beijing native who works as a marketing specialist, had a first-hand experience on how much rising rent can hurt her spending habits, while struggling to find a new job after her previous position got cut because of declining market demands.

"I was working for a social media company targeting female audience when China's internet Bubble busted. My whole department got laid off and I couldn't find another job for several months. But that didn't stop my landlord from raising my rent by almost 30 percent, as the government's campaign to kick out migrants drove up rental prices in the city," she said.

Earlier this month, to curb skyrocketing rental prices in Beijing, local government instructed the city's real estate agencies to boost supply and vowed to punish those who hoard supplies to drive up prices. According to figures released by online property platform Zhuge, average monthly rent in Beijing jumped 25.6 percent in July, with some areas rising as much as 40 percent, compared to the same period in the previous year.

Struggling to find a stable income while having to deal with higher rent, Zhang was forced to cut back on all kinds of daily expenses.

"Even after finding a new job, the higher rent plus the accumulated debt from the months without a job forced me to save money whenever I could. Before I always took taxis or used ridesharing services like Didi to work. Now, I rely solely on shared bicycles for daily commute. Instead of going to Starbucks every day, I started to buy coffee beans to make my own coffee. I also canceled my gym membership, which I can no longer afford," she said.

The financial troubles also offered Zhang a new perspective on her previous "addiction" to designer handbags.

"When I was younger, as a girl, I would buy a whole collection of products a top brand releases. Now, I would be much more selective and just pick 1-2 pieces. I used to buy handbags from Fendi or Celine [which cost about $3,000 on average]. I have changed to other brands such as APC from France or Marni from Italy [which cost about $1,000 on average]," she said.

Zhang added that, instead of going after physical products such as handbags or clothing, she would prefer to spend the money on traveling to different places and enjoying new experiences in life.

The surprising success of Chinese e-commerce platform Pinduoduo, which raised $1.63 billion through its initial public offering in July, shocked many international observers of the Chinese market, because the emerging Chinese online retailer targets the group of bargain-hunters, who would buy cheap products with subpar quality or even fake products.

The popularity of the budget-friendly platform in China has also been used as evidence for those who argue that consumption is indeed being "downgraded" in the country, as Chinese consumers are no longer just lining up for luxury products.

However, Chinese economists explained that the users of Pinduoduo simply cover a completely different group of Chinese consumers, who never could afford luxury products in the first place.

"In first and second tier cities in China, basic consumption demands for physical products have already been satisfied. The situation with Pinduoduo is very different, as most of its users are in the countryside or third-fourth tier cities, where consumption of physical products continues to be the priority," Zhang Jun, chief economist at Morgan Stanley Huaxin Securities in Shanghai, told Sputnik.

The economist pointed out that slowed growth in property prices could have had negative impact on consumption in third and fourth tier cities in China.

"Consumption is closely related to the economic cycle of the property market. When people talk about 'consumption upgrade' in recent years, it was mostly about growing consumption in third-fourth tier cities, where property prices grew rapidly. But as the property market in those cities cooled down, it had a huge psychological impact on people's confidence in consumption," he said.

The expert explained that when the value of a person's property expands from $500,000 to $800,000, it would offer a huge boost to the home owner's confidence in consumption, even if the household income remains the same.