Changes in China's Spending & Savings Patterns May Boost Ecommerce | EMQQ
has long been a nation of savers. These savings helped to create the
capital in China to fund massive infrastructure projects, fund investment
around the world, and drive large purchases of U.S. Treasuries. However,
an article in the Wall Street Journal noted how this pattern is changing. The population in China is saving less while borrowing more. This shift
is leading to a more consumer-oriented economy in which the population spends
more on items like apparel and electronics, travels more, and borrows more .
beneficiaries from a consumer-oriented society that is acquiring more debt
include ecommerce firms such as Alibaba (BABA) and JD.com (JD) which sell the
products that the population is increasingly consuming, travel providers such
as Ctrip (CTRP) which fulfill the population’s desire for travel, and
apps-based lending companies such as Ant Financial (1/3 owned by Alibaba) and
Tencent’s WeChat (TCEHY) who lend them the money.
In 2010, the average Chinese worker saved 39% of their income. In 2019,
that amount has declined to 33%, while some younger Chinese workers save
nothing at all, according to the WSJ.
Individuals are borrowing more to fund new cars, houses, and
international travel. The WSJ article noted that in 2018, Chinese
households owed 54 cents for every dollar of GDP. That figure is expected
to rise to 68 cents by 2024. The U.S. rate is 78 cents.
Mortgages have become a large percentage of debt. Nearly 22% of
the income of middle-class Chinese works covers mortgages. For
lower-income Chinese workers, that figure is 41%.
Less Fuel for Government Spending
Savings are ultimately invested back in the economy. In the past,
a large portion of those savings were lent to the government which used them to
fund large infrastructure projects. Less savings means less money for the
Chinese government to spend on infrastructure projects.
Additionally, as China imports more to fuel increased consumer spending,
its foreign-exchange reserves are reduced, and there is less money to buy U.S.
Creating a More Consumer-Focused Economy
consumers are borrowing and spending to fuel purchases of electronics, cars,
real estate, and international travel. Consumer spending may help to
create new growth momentum for China. It may also help to spur the
creation of small businesses and other foundations of a sustainable consumer
Savings Moving to App-Based Financial Firms
There has also been a shift in where the Chinese population saves and
borrows money. Rather than being deposited in government-insured
financial institutions, many are turning to app-based financial firms.
According to the WSJ, at least half of China’s population has an account
with Alibaba’s one-third owned affiliate Ant Financial’s Tianhong Yu’e Bao
app-based mutual fund or similar investments through Tencent Holding’s WeChat,
which offer higher payouts.
These firms turn deposits into short-term loans for companies and
consumers. In fact, the WSJ noted that loans promoted through Alibaba and
Tencent are replacing mortgages as the fastest-growing source of individual
indebtedness in China.
Default Rate Concerns
However, some financial firms are noting that delinquency rates are
rising. Additionally, debt is rising just as the economy is showing signs
of slowing down, and an aging population is on track to tap savings for their
The Chinese population is beginning to save less and spend more.
This may help to transition China to a more consumer-oriented economy.
This may benefit ecommerce firms, travel companies, and app-based lending
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Article Date: 23rd January 2020.