China’s wealthy consumers splurged on luxury goods this year while low-income workers tightened their belts by saving on cheaper alternatives. Both can point to Covid-19 for the polarised spending behaviour.
The pandemic has aided sales of luxury items such as high-end cars, liquor and lavish holidays at home as overseas shopping trips became restricted, according to analysts. At the same time, concerns about job losses in a beaten-down economy have prompted workers – many in the catering and services industry – to be frugal, they added.
“There are these insulated spenders who have pent-up frustration because they are not able to travel overseas, so on one hand we are seeing this higher-end growth,” said Justin Sargent, president of retail intelligence at market research firm Nielsen Asia.
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“By the same token, if you look at the statistics around, more people are feeling the pressure on their finances and job prospects, so you’ve also got more focus on the value spectrum.”
Underscoring the polarisation, luxury car sales climbed by 32 per cent in August from the same period last year, according to a Nomura report on September 24. Their share of the market rose to 14 per cent in January-to-August from 11 per cent in the same period in 2019. The overall industry saw a 15 per cent decline in sales.
Another example is the 101 billion yuan (US$15 billion) market for baijiu. Makers of the high-end fiery Chinese liquor including Kweichow Moutai and Wuliangye Yibin posted steady sales expansion of 11 to 13 per cent in the first half this year, against the backdrop of an economic slump.
They are the only distillers to have achieved double-digit growth among the peers listed on mainland China stock exchanges. Most of the 17 players in the industry saw sales plunge by more than 15 per cent during the same period from a year earlier.
On the flip side, sales of fast-moving consumer goods like cereal, shampoo and those categorised in the lowest price tier of consumption basket surged by 31.3 per cent in April from 30 per cent last year, according to data from Nielsen.
The driver behind that volume growth could be the many rural migrant workers unable to return to big cities after losing jobs due to various levels of lockdown over the virus outbreak at the start of the year.
More than 40 million such workers have had to remain in smaller cities by the end of August, according to data from Jefferies that tracked the locations of 1 billion mobile phone users.
Besides the wealth gap manifested in the spending behaviour, the Covid-19 pandemic has also widened the growth differential in sales channels. Online retail sales expanded 16 per cent in the first eight months of the year, while overall retail sales contracted 9 per cent, according to Nomura.
Alibaba Group Holding reported a 34 per cent jump in revenue in the first half from a year earlier. The value of goods sold through its online platforms accounted for 18 per cent of China’s total retail sales, versus 10 per cent in 2015, according to chief financial officer Maggie Wu.
Alibaba is the world’s largest e-commerce operator and owner of the South China Morning Post.
The spending “imbalance” could hinder the nation’s goal of firing up domestic consumption to propel the economic rebound. So far, China’s consumption recovery story has lagged behind other sectors of the economy.
Retail sales only managed to achieve their first year-on-year growth this year by a minute 0.5 per cent in August, after shrinking by 1.1 per cent in July. In contrast, industrial production expanded by 5.6 per cent in August. That divergence could persist for a while, Nomura said.
“Covid-19 dealt a more severe blow to low-income groups, while leaving wealthier households largely unscathed financially from the pandemic,” analysts led by Lu Ting said in the report.
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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.
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