Wednesday, December 12, 2012

Spending under pressure in uncertain times - Tom Doctoroff

Doctoroff
Tom Doctoroff
While the world's economies are stagnating, many look at the Chinese consumers as the only place where spending is still high on the agenda. But getting money out of the Chinese pockets is not easy, warns China-watcher Tom Doctoroff in the Huffington Post, especially in uncertain times. 

Tom Doctoroff:
Even during the best of times, middle class Chinese are torn between "projective" and "protective" impulses. Relative to other markets, even in Asia, PRC shoppers are will shell out big bucks for any product that generates face, the currency of forward advancement. From a cup of Starbucks coffee to a new car (usually purchased for more than 100 percent of yearly income, and often involving contributions of extended family members), status is an investment in the future. On the other hand, goods consumed in the home -- for example, appliances or home furnishing -- and other non-essential items are extremely price sensitive. 
This dichotomy results in stratospheric savings rates, in excess of 35 percent of GDP. 
During periods of uncertainty, the pull between projection and protection becomes even more pronounced. Mid-tier brands, ones neither particularly cheap nor status generators, struggle. So do "lower-end luxury" items. If consumer confidence continues to drop, value consciousness will be even more acute and pennies will further be pinched. Retailers such as Levis and the Gap, priced between cheap local labels and more premium brands, will face challenges. So will out-of-home restaurants such as Pizza Hut. The real estate market will also continue to stagnate. 
During the 2008-9 financial crisis, spending froze -- auto sales flat lined, the real estate market ground to a halt -- until massive government-mandated investment sent signals of reassuring determination to maintain heady growth. Public confidence in its government's ability to navigate dangerous shoals remained steady, despite the sudden loss of 20 million factory jobs, mostly held by migrant workers.
More in the Huffington Post.

Tom Doctoroff is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.
Enhanced by Zemanta
Post a Comment