China’s middle class cautious about spending, new survey finds

China’s middle classes remain cautious about spending – particularly on property – despite government efforts to loosen household purse strings, according to a university study.

In their latest quarterly survey of household wealth and income, researchers at Southwestern University of Finance and Economics in Chengdu, Sichuan province, found that their index of families’ future spending expectations was even lower than the early days of the Covid-19 pandemic.

In the China Household Wealth Index Survey conducted by the university’s Survey and Research Centre for China Household Finance, the index of spending expectations fell to 101.9 in the first quarter of this year, down from 103.0 in the fourth quarter of 2023.

The dividing line between expansion in spending plans and contraction is the figure of 100.

The latest figure is even lower than the 102.6 result for the second quarter of 2020 when the coronavirus pandemic began to hit the economy.

The survey measures the spending plans of households with an average of 1.5 million yuan (£163,000) in combined property and financial assets, and an average household income of 170,000 yuan £18,500).

China’s GDP expanded 5.3% year-on-year in the first quarter of 2024, with domestic consumption contributing 73.7% to economic growth, according to the National Bureau of Statistics (NBS).

Retail sales of consumer goods, a major indicator of the country’s consumption strength, rose 4.7% year-on-year in the first quarter of this year.

But discretionary spending in areas such as travel and entertainment have largely remained at pandemic lows, although rising to 99.6 in the first quarter from 97.5 three months earlier.

Only 6.8% of households said they planned to buy property in the next three months, while 20.1% said they would take a ‘wait-and-see’ approach, the survey found.

The fall reflected a broader decline in investment in the country’s real estate sector, which fell 9.8% year-on-year in the first four months of 2024, according to the NBS.

The report accompanying the university’s survey also said that 62.3% of respondents were not optimistic about economic prospects in the next 12 months, down slightly from 66.4% three months earlier.

The authors of the report said the results reflected greater economic pressure faced by these households and authorities should consider tax incentives for middle- and low-income families to ease that burden.

The research of surveyed households enrolment in the national private pension scheme, launched in November 2022, did not meet government expectations. By the end of last year, 50 million people opened personal pension accounts, but only 22% of the account holders had actually made deposits, the report said.

About two-thirds of respondents cited a lack of understanding of the policy or concerns about policy changes, and 32.6% were concerned about being unable to withdraw investments before retirement or limited tax incentives.

 

German SMEs look to Chinese market for growth

German high-tech start-ups and small and medium-sized enterprises (SMEs) are expected to be main players in the future cooperation between China and Germany, according to a report issued at the recent forum for Sino-German industrial cooperation and development.

The report, entitled ‘China-Germany Hidden Champions Industrial Cooperation Research Report’, studies the history and attributes of German innovators that specialize in developing new and unique products.

It was jointly released by the International Cooperation Center of the National Development and Reform Commission and the DEZ German European Centre for SME Cooperation in China.

‘Hidden champions’ refers to highly successful yet lesser-known SMEs that are global leaders in terms of market share in their respective niches. Germany now boasts about 500 hidden champions.

“Focus, long-termism and innovation are the features of German hidden champions and are worthy of reference for Chinese enterprises,” said Peng Jian, chief expert of the report research group.

According to a report issued by the German Economic Institute, the direct investment from Germany in China had reached a record high of €11.9 billion in 2023. During the same period, German investment in China accounted for 10.3% of Germany’s total overseas investment — the highest level since 2014.

Data from China’s Ministry of Commerce also shows that German investment in China increased by 48% in the first three months of this year.