China Herald: Sky high stocks do not boost consumption

Wei Gu

Despite a short correction, Shanghai´s share are still on record heights, writes WSJ wealth editor Wei Gu in Marketplace. But those records in wealth have not boosted consumption, as investors tend to wait and see what the market is doing.

Wei Gu:

The recent market upturn follows a long spell in the doldrums for Chinese stocks after a sharp correction in 2007. Lots of investors lost money in the downturn, reducing interest in the market. Momentum only began to build again last year, fueled by low interest rates and moves to allow greater foreign investment.

While the rally has done little to help consumption, it could hurt spending in the event of a market collapse. That is because much of the recent buying has been with borrowed money. Margin debt as a percentage of China's stock-market capitalization is now higher than on the New York Stock Exchange. If the market's downturn continues, investors may have to rein in spending to repay loans.

Agents at luxury-car showrooms in Shanghai say wealthy customers are delaying purchases to invest more in the stock market. Auto sales fell by 0.5% from a year earlier in April, the first decrease in almost three years. Fewer than a quarter of respondents to a recent survey by online news portal Netease said they would consider using gains from the stock market to buy a car.

Instead of buying a new vehicle, "some people have decided to lease a car for the first time so they can keep investing," said Shaun Rein, managing director for China Market Research, a consumer-intelligence firm.

More at Marketplace.

Wei Gu and Shaun Rein are speakers at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form.

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