Prime Minister Wen Jiabao said Beijing’s stimulus measures are helping consumer spending and growth, and while he warned of some "prolonged difficulties" as the financial crisis spreads, foreign auto makers and other manufacturers already are seeing an unexpected rebound in sales in China.
The resilience of Chinese spending contrasts with sharp cutbacks by American and European consumers, and may help China recover faster from the financial crisis.
Mr. Wen said consumption growth has been especially fast in less-prosperous central and western regions, and auto makers’ results support that claim.
A torrent of bank lending, spurred by the government, is increasing investment in China. Consumers are out shopping in response to incentives such as lower mortgage rates and tax cuts on car purchases.
Economic growth slowed to 6.1% in the first quarter, as retail sales, after adjusting for price changes, rose 15.9% for the period. While that was slower than the 17.7% rise in spending in the fourth quarter of last year, economists say the growth in consumption is encouraging given rising unemployment in the country and the contrast with shrinking consumption in other major economies.
Mr. Wen has stressed that "confidence is more important than gold or money," and consumer spending levels suggest Beijing’s efforts to boost morale are working.
Auto makers in particular are benefiting. Vehicle sales in China climbed 5% to a record 1.11 million units in March — a tentative turnaround from last autumn, when car sales slowed significantly.
Luxury brands performed well. Daimler AG’s Mercedes-Benz unit and Audi AG rang up their highest China sales in March. So did General Motors Corp., which sells, in joint ventures with local auto makers, Buick, Chevy and Cadillac cars, as well as the micro minivans increasingly popular in rural areas.
Foreign auto makers are coming to China this week for the biannual Shanghai Auto Show, where Mercedes-Benz will unveil its redesigned S-Class S65 sports sedan.
In China, people "still have the money to buy a Mercedes," said Ulrich Walker, chairman and CEO of Daimler’s northeast Asia operations. "We expect a continued positive growth trend."
Mr. Walker says that while his customers, who can afford to spend more, aren’t influenced by state subsidies on car purchases, China’s buoyant stock markets are helping. "At the moment all the signals we’re getting look positive" for a good year, he says.
Auto sales took off at dealerships in rural China that offer Chinese-made micro-minivans, after the government introduced a program offering cash refunds for farmers buying new cars or replacing old ones. The Wuling vehicles, built by a General Motors affiliate, have always been relatively inexpensive, at 30,000 yuan to 40,000 yuan ($4,400 to $5,500) apiece, but the refunds made them more attractive.
Song Chunliang, a 24-year-old farmer in Shandong province, says he rushed to buy a new vehicle last month after hearing about the subsidies. He considered cars from Wuling’s rivals but bought a Wuling Sunshine microvan in the end, using the money he raised by selling his old Changhe-Suzuki and borrowing from a friend.
"I thought about replacing my old car before. But this was such a great promotion plan. I knew I had to act on it immediately," Mr. Song says.
In the rural Sichuan city, Dazhou, a store operated by Lingtong Qingshan Automobile Sales and Service Co. sold 318 Wuling microvans in the first quarter this year, almost matching the 347 cars it sold all last year, the company said.
A good portion of recent purchases are from returnee migrant workers who use their savings to buy micro-minivans to start rural taxi services.
Since stimulus funds began flowing this year, the measures have had a particularly "significant impact" on auto sales in third-tier and fourth-tier cities, says Kevin Wale, president of GM China. Mr. Wale says the auto boom in rural China is a "genuine" long-term trend supported by improved roads and the rapid pace of urbanization.
"China is the only [major] market growing around the world for us, thanks to China’s support for the economy," said Yasuaki Hashimoto, head of Nissan Motor Co.’s China operations. He said rural inland sales were "the main driver" for the 36% growth in China passenger-auto sales the company posted in March.
The global financial crisis also is highlighting the differences between Chinese and global buyers. Three-quarters of China’s consumers plan to maintain or increase their spending next year, according to a study by the Boston Consulting Group — nearly double that of the U.S. and European Union. Consumers appear to be less nervous about their personal finances, with only 23% expecting the economy to worsen in 2009, compared with 32% in the U.S., 49% in Europe and 57% in Japan.
Chinese consumers are spending, in part, because they have greater confidence in the government, rooted in three decades of rising economic growth. "The younger generation [in China] doesn’t have bad memories. We did the survey in Brazil where the real economy is OK, but people still have bad memories [of economic upheaval]. So even though the real economy there is not that bad, more folks are trading down," said Carol Liao, partner and managing director at Boston Consulting’s Greater China office.
To be sure, the large-scale unemployment of migrant workers — government estimates are in the range of 20 million jobless — would have an impact on spending by rural households. Even if those people find jobs later this year, many economists expect it will be at lower wages.
Chinese consumers also face longer-term constraints, with the need to save for education, medical emergencies and old age. The government dismantled many social safety nets as it moved out of the planned economy, but has started to rebuild them in recent years.
"Any recovering consumer confidence is still fragile," cautions Royal Bank of Scotland economist Ben Simpfendorfer, noting Chinese retailers are still discounting heavily, presumably in response to weaker demand.
But the China market is proving to be a bright spot even for companies not benefiting from Beijing’s consumption-boosting initiatives.
Consumer-durables giant Procter & Gamble Co. says its sales in China are growing at the slowest rate in six years, but sales in other markets are shrinking. Sales of Louis Vuitton products remained "stable" and "strong" in 2008, the company said, in comparison with a 4% and 5% drop in sales revenue in the U.S. and Japan, respectively. Europe’s second largest-retailer, Metro AG, reported that 2008 sales in China rose 15% to $1.1 billion.
WSJ
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