Shoppers inspect gold products at a department store in Suzhou, Jiangsu province. Most of the country's shopping malls harvested robust revenue growth during the Golden Week holiday. Wang Jiankang / for China Daily

Chinese consumers loosen purse strings as new incentives give fresh impetus for spending

Though concerns over the economy still persist, consumer spending, backed by fresh government incentives, continued to rise in China during the Golden Week holidays (Sept 30-Oct 7), bringing much cheer to businesses and industry.

Despite the current buoyancy, overall consumer spending is unlikely to exhibit similar growth patterns for the rest of the year, experts say, as there is still an overhang from the weak economy and inconsistent government policies.

However, the weeklong holiday, thanks to the convergence of the Chinese National Day on Oct 1 and the Mid-Autumn Festival on Sept 30, has proved to be a bonanza for the brick-and-mortar stores.

In contrast, e-commerce sites did not provide much joy to consumers and there were no discounts or freebies to propel sales. Wary consumers were also not too keen to make purchases online after a recent price war among top retailers led to steep erosion in confidence after the move was termed a "fraudulent practice".

According to sales figures from the top 130 shopping malls and tracked by the Beijing Commercial Information Center, the first day of the eight-day holiday saw revenue growing by as much as 21.2 percent to 910 million yuan ($145 million, 122 million euros).

Brisk sales of moon cakes, a special pastry made for the Mid-Autumn Festival, contributed largely to the robust trend. Beijing Daoxiang Village Food LLC, the barometer of the snack segment in the city, saw revenue climb to 320 million yuan on Sept 30, an 18 percent growth.

In Shanghai, retailers jostled for the deepest discounts to drum up interest from consumers. Fast fashion brands like H&M and Zara knocked 50 percent off women's sweaters. Even the markdown-averse British clothing retailer Marks & Spencer dusted off its clearance signs, selling summer wear for 59 yuan, compared with the original price of 238 yuan.

Shanghai Bailian Group, China's top retailer, came out with stunning discounts, including issuing a 50-yuan coupon to shoppers who have spent 100-yuan on women's clothing, and a 25 percent price cut on certain cosmetics.

Most of the 100 major retailers in Shanghai saw their revenue climb by 12.8 percent to 1.64 billion yuan during the first three days, data from Shanghai Commercial Information Center showed.

Among them, the landmark New World Department Store, which is under the auspices of the Bailian Group and located on the tourist-congested East Nanjing Road, reported 33 percent year-on-year growth, with sales hitting 130 million yuan.

Chen Bainian, 68, a photography enthusiast in Shanghai, spent 3,100 yuan on an Olympus mini digital single-lens reflex camera on Mid-Autumn Day. He had been checking prices since early September in a Suning outlet near Fudan University but did not buy the camera until the first day of the holiday.

"Holidays usually mean discounts and I did get 100 yuan reduced from the overall sale price. More importantly, I would just like to swim with the holiday tide," he said.

Golden Week is an occasion for activities such as refurbishing the home, spending time together and simply relaxing. Demand is also evolving due to other needs such as travel, says Vladimir Djurovic, president of Labbrand Enterprise Management Consulting in Shanghai.

"As a matter of fact, it is not a question of good price only but also access. For the travel industry, it is not a problem to hike prices at this time of the year."

The longer-than-usual holidays are seeing increasing allure among consumers in domestic travel, notably this year because a new policy lifting highway tolls during major festivals has come into effect, spurring unprecedented spending derived from the self-drive tour frenzy.

According to figures from 119 tourist sites monitored by the National Holiday Office, the compounded number of visitors has amounted to 5.75 million as of Oct 2, up 29.2 percent year-on-year.

Meanwhile, income for entrance fees alone reached 310 million yuan, soaring 33 percent.

In general, last-minute flights and hotel rooms become extremely expensive and hard to book. Data from online travel agency Ctrip.com showed up to 95 percent of hotel rooms had been reserved from Oct 1 to Oct 4 near tourist sites. Prices for budget hostels and four-star hotels have seen an average 20 percent surge, with some even doubling the original prices.

Likewise, the fledging car rental industry got a boost as car rental orders piled up, with demand outstripping supply in key cities.

Prices surged as people snapped up the vehicles. Shanghai-based car rental company eHi Auto Services said its prices were on average 30 percent higher than usual, while at the Beijing-headquartered China Auto Rental, the price from Oct 1 to Oct 3 was on average twice that of workdays.

While downside risks remain in the macro economy, the Golden Week may also become a white knight riding to the rescue as it may ratchet up consumer spending in a concentrated period, said Xu Wei, a researcher from the China Center for International Economic Exchanges in Beijing.

"We expect to see a recovery in major economic indicators in the third quarter, and the Golden Week can act as an impetus that prods the pickup over the coming months."

But she said the "spill-over" effect of the long holidays was likely to be flattened, as consumer spending is more normalized and diversified compared with a decade ago.

The upswing in the tourism industry, boosted by the holidays, is largely offset by the lackluster global economy, said Ding Ningning, a research fellow at the Development Research Center of the State Council, because the segment currently accounts for a marginal share in the national economy.

A strong demand at home is viable only thanks to a brighter outlook for jobs and income growth, and that requires the government to adjust many of its basic economic policies, such as the real estate policy, Ding said. "For instance, restricting the purchase of additional apartments, which puts a lid on housing prices and on sales, is little more than a stopgap measure giving the government time to implement more effective measures. But they should come up with practical plans to allow university graduates and migrating city dwellers to settle down, because they are the ones who drive up spending the most."

Zhou Hao, a Shanghai-based economist at ANZ Banking Group Ltd, said it is unrealistic to nurse the hope of an economic recovery on the back of a holiday spree, especially if massive plans to encourage domestic demand are not well in place.

"For much of the last two decades, growth in the Chinese economy has been driven primarily by exports. Currently plagued by the crisis-torn European market and anemic recovery of the US, any robust growth will be short-lived because of persistent weakness in domestic demand."

China's non-manufacturing PMI index dropped month-on-month 2.6 percentage points to 53.7 percent in September, indicating a slowing growth in the retail and services sector.

Therefore, it is overly optimistic to reckon temporary schemes such as the waiving of motorway tolls would stimulate consumer spending in real terms, Zhou said.

"In contrast, more sustainable policy incentives, such as cuts in taxes and logistics spending, are in effect conducive to enhancing the service industry."

hewei@chinadaily.com.cn

(China Daily 10/05/2012 page3)