Is ‘consumption downgrade’ a broader trend or felt only by migrants?
China’s slowing economy and sky-high housing prices are prompting the country’s hundreds of millions of middle-class people to transition from quality, brand goods to cheap things on sale, a widely circulated blog article claimed, citing relevant official data to prove what it calls a “consumption downgrade” trend. Although questions were raised over the seriousness of the claims, the Chinese government has indeed come up with incentive policies to boost consumption.

The purchasing power of Chinese people has remained a driving force behind the country’s robust economic growth for years. Now, it’s worried that with the middle-class urbanites increasingly burdened by mortgage and rent payments, the economy may begin to lose steam due to declining consumer spending.

Self-media “Zhengjie Club” has recently posted an article, gaining 100,000+ views on WeChat Moments, through which it depicted a bleak picture: drinking erguotou (a kind of low-cost dry spirit) with pickled vegetables, riding on shared bikes in order to save taxi fees and turning from to Pinduoduo, an online retailer specializing in cheap goods and infamous for trading counterfeits, even well-paid white-collars have to cut expenses while trying hard to make ends meet.

China’s official data is indicative of a sluggish demand in consumer markets. The total retail sales of consumer goods in May saw a year-on-year growth of 8.5 percent, registering the smallest expansion in 15 years, according to the National Bureau of Statistics (NBS). By July, the growth just slightly picked up to 8.8 percent, still well below the market expectations.

“Zhengjie Club” also cited the economic data released by Guangzhou, the capital city of southern China’s Guangdong province, which is generally regarded as representative of first-tier cities in China like Beijing and Shanghai. The published data said in the first half of 2018, the total consumption amount of the city scaled at 448.9 billion yuan, dropping 8.3 billion from the same period last year.

“(Middle-class Chinese live in) apartments worth tens of millions of yuan while being left with merely 3,000 yuan ($441) to cover one month’s expenses,” wrote the blog, noting that “mortgage payments and surging rental prices in big cities have exhausted people’s purchasing power.”

Official data reveals more Chinese families are paying back bank loans now, with a large part of bank lending made of home loans.

“Chinese households are much more leveraged now, with the leverage ratio surging to 110.9 percent by the end of 2017,” said Chen Yanbin, the vice dean of the School of Economics, Renmin University of China, citing the NBS data.

Over the past five years before the end of 2017, the household leverage ratio surged 18.7 percentage points. The same ratio climbed 18.8 percentage points in five years’ time in the United States just before the year 2008 when the financial crisis broke out.

New housing loans constitute a large part of the bank lending: in 2015, new home loans scaled to 3.87 trillion yuan, occupying 33 percent of the total bank loans; in 2016, the figure went up to 6.33 trillion yuan, taking over 50.04 percent of the total; and in 2017, 7.13 trillion yuan of new home loans occupied 52.7 percent of the total bank lending.

For those who have not yet purchased a home, surging rental prices threaten to ‘downgrade’ quality of life in big cities. It’s widely reported by Chinese media that, since July, after the central government rolled out a raft of policies to boost development of home rental markets, some major real estate agents exploited the incentive policies to speculate on the markets, pushing up housing rents.

Although authorities have immediately taken measures and pledged to contain rising prices, analysts worry administrative measures may prove to be ineffective.

“The sharp rise in living cost has frustrated middle-aged and young people born in the 1980s and 1990s. They choose to refrain from desires, cut down on consumption, not to get married, not to have a child and not to buy their own homes,” wrote the blog.

With the topic “consumption degrade” triggering heated debate on Chinese social media, some state-run media argued the so-called “culture” is not as pervasive as it’s claimed to be, considering “only the group of migrant population who don’t own homes in the cities they live and work would bear the brunt of high housing cost.”

“Young people without expertise in specific fields like office clerks, sales people and real estate agents have bigger chance to find better paying jobs in bigger cities than in lower-tier cities. So, they’d like to stay in the big cities. But once home rental prices go up, they would face ‘consumption downgrade’, because a large part of their income goes into rent,” wrote a commentary by, a state-owned news portal, arguing the “so-called consumption downgrade” could only be felt by “a group of people”.

“Some of them may need to go back to their hometowns where living cost tends to be low, while some may decide to stay, they may face more problems,” the commentary said, while suggesting to adopt “all kinds of measures to make people in smaller cities attain better and more prosperous development.”

Amid a slowing economy after decades-long double-digit growth and escalating trade disputes with the United States, it’s obvious China is now relying more than ever on domestic consumption to boost its economy.

Earlier this year, the country’s lawmakers had proposed reforms in the income tax system in a bid to relieve levies on most individual tax payers. The draft plan is expected to be passed soon and put into force this October, and is widely interpreted by foreign media as a “positive action” to try to diminish economic inequality in the country while making sure citizens have more disposable income to spend.      


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