Why the Chinese have stopped spending
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Why the Chinese have stopped spending

APPLE stock plummeted last week, hitting its lowest price level since July 2017 on Thursday, a day after slashing revenue projections in a rare acknowledgement of suffering sales. The prime culprit for the estimated shortfall was Chinese consumers – or lack thereof.

According to CNBC, the company’s losses push Apple’s market valuation below US$700 billion, placing it behind the market cap of Alphabet to become the fourth most valuable publicly traded US company — down from the top spot just two months ago.

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Apple blamed a variety of factors for the lower sales forecast – such as people not upgrading to the new iPhone – but the blame was laid predominantly at a lack of sales in Greater China, its third biggest market after the US and Europe.

Until recently, the Chinese market was seen as a reliable spending hub, one that many global companies put their faith – and billions of dollars of investment – in the country’s continued purchasing power.


Stock numbers for Apple are displayed on a screen at the Nasdaq MarketSite in Times Square, January 3, 2019 in New York City. U.S. stocks dropped again on Thursday after Apple warned that its first-quarter sales would be less than expected. Source: Drew Angerer/Getty Images/AFP

But that consistency is starting to falter, threatening the economy and business confidence the world over.

Apple is not alone in its revenue woes. Auto sales fell by three percent in 2018 – their first decline in about two decades. While retail sales are still going up (8.1 percent in November), it is the slowest rate of growth in 15 years, according to data from the National Bureau of Statistics of China, reported by CNBC.

A recent report from The New York Times found a glut of unwanted apartments is depressing the property market, a pillar of China’s wellbeing, accounting for almost one-third of the country’s economic growth.

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The failing property market is part of the reason Chinese families have stopped spending. Property is the largest source of wealth for many families, accounting for as much as 85 percent of a family’s assets in some cases. With property prices on the wane, people are tightening their belts.

This is happening under the cloud of mounting household debt and a government eager to encourage people to spend more on the finer things in life. To fund the aspirational middle-class lifestyle of designer wear and fancy cars, many are turning to credit cards and loans.


An aerial view of residential buildings in Tianjin, May 10, 2018. China is experiencing a glut of property which is threatening the wider economy. Source: Fred Dufour/AFP

Coupled with a struggling job market, and the strain is starting to show. According to the Times, a decline in business confidence and rising labour costs are behind falling employment figures.

The tit-for-tat trade war with the United States isn’t helping matters either. US President Donald Trump has already placed 10 percent tariffs on US$200 billion worth of Chinese goods, and has threatened to increase it to 25 percent if an agreement isn’t reached during the current 90-day truce, due to end in March.

This level of uncertainty in what the future holds is causing people to be more cautious with their spending, opting for local cheaper brands over expensive Apple and Ford products.

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Despite the slowdown, economists are quick to stress China’s spending is far from over. Local brands such as Huawei and Xiaomi are booming as they offer comparable customer experience at a fraction of the price tag. Services and entertainment spending are also on the rise.

But to restore consumer confidence, the ruling Communist Party needs to work on setting the economy back on the right track.

“The question is whether China can stabilise economic growth when it is facing economic headwinds,” Wei Li, senior China economist at Standard Chartered, told the Times.

“If the labour market does worsen in 2019 or if financial conditions don’t improve, if the stock market remains low, all this could weigh on consumer confidence.”