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1:57 pm HKT
Jan 25, 2016 ECONOMY & BUSINESS
China’s Retailers Hope for Big Spending as Lunar New Year Rush Kicks Off
China’s central bank is pouring cash into the financial system to make sure the ATM machines don’t run dry during the early February Lunar New Year holiday.
That’s left retailers hoping that consumers will bust out their bank cards and spend away in spite of the darkening economic clouds on the horizon.
“We hope sales will be better this Lunar New Year,” said a marketing official with Fun2 Shopping Mall in the southern city of Shenzhen who gave her surname as Chen. “But we suspect they’ll be pretty much the same as last year.”
In a bid to boost sales of clothing, shoes and food items, the 90-store Fun2 mall operated by state-owned China Resources (Group) Ltd. is offering discounts and reducing the minimum amount that customers must spend for a free gift to 100 yuan ($15.20) from last year’s 188 yuan. The group declined to give its sales target.
Retail sales in China have been a rare bright spot as annual growth downshifts to 6.9%, its slowest pace in 25 years, and manufacturing and real estate investment slump. But economists expect consumption to slow this year as layoffs increase and demand weakens. In December, retail sales growth edged down to 11.1% year on year from 11.2% in November.
Gao Jie, a 34-year old salesman working in Beijing, said he expects to spend 10,000 yuan welcoming in the Year of the Monkey, about the same as last year. Roughly one-third will be spent on restaurants and special food in his hometown in Hebei province adjoining the capital, he said wrapped in a black down jacket against the cold. Another third will be spent on gifts for his parents and relatives, including hongbao, the cash-filled red envelopes meant to bring good luck and ward off evil spirits. And the rest will be frittered away on other expenses, he said.
Some people this time of year try and avoid situations where they’ll have to spend, which helps their wallet, if not the economy. Migrant worker Li Li, age 32, decided not to go home to central Hubei province last October after losing his job “so I won’t have to hand out all the hongbao at Lunar New Year,” he said.
Others tell their parents they’re busy in order to minimize the time at home with its obligatory cash outflows. There’s even a term for those who dread going home for the holidays either because they’ll spend too much, expect a grilling on their marital plans or face other anxieties; they’re known as the kongguizu, or “those who fear returning home.”
“I don’t want to go home for the New Year,” said a user identified as GuoXingXingsrd on the social media site Weibo. “I don’t have money. There will be lots of fights when I get home. I’ll be bored to death.”
A clue to expected weaker spending can be seen in corporate profits, a leading indicator of where household spending and incomes will be six to nine months later, said analyst Thomas Gatley with research group Gavekal Dragonomics.
“People get pre-Chinese New Year bonuses that reflect how companies did over the past six months, which has been terrible,” said Mr. Gatley. Industrial profits at larger companies fell 1.9% during the first 11 months of 2015, compared to an increase of 5.3% for the year-earlier period, according to official figures. And Beijing’s prolonged anti-corruption campaign will further dampen consumer enthusiasm, particularly for luxury goods, he added.
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In a bid to keep enough cash rolling through the economy, the central bank has injected some 1.5 trillion yuan into the banking system in recent weeks, with more expected before this year’s February 7-13 holiday.
This year is a more complicated calculation for China’s central bankers – and economists trying to read their intentions – since the weakening economy and record capital outflows add further pressure to ease monetary policy.
“It’s hard to be confident you can discern what is needed to finance Lunar New Year spending and what is needed to keep banks liquid,” said ING Group economist Tim Condon. “We’re in the silly season.”
While the rapid development of electronic payment systems in China should reduce the demand for cash, tradition runs deep, analysts said.
“A big part of the process of giving hongbao is the face aspect – the gesture,” said Oliver Barron, China research head with investment bank North Square Blue Oak. “This is obvious with an envelope. It’s not obvious with an online transfer.”
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