China's Middle Class Is Staying Home. So Is Its Money
A vendor places a 100 yuan banknote into a basket at a food exhibition in Shanghai, China. (Photographer: Qilai Shen/Bloomberg)

China's Middle Class Is Staying Home. So Is Its Money


The Chinese used to be an adventurous bunch. Last year, 170 million of them traveled internationally, threatening to tip the nation into a current account deficit. Now, scarred by anti-Chinese sentiment abroad amid the pandemic, and suspicious of many things foreign, consumers are turning inward.

Consider a CLSA Ltd. survey of 1,600 shoppers, conducted between June 30 and July 7. Three-quarters of respondents hold university degrees, so the study offers a good window into middle-class spending habits.

Even if Beijing loosened up and allowed travel with, say, Europe, two-thirds of those surveyed said they planned to wait at least another four months before heading abroad. This is a drastic change from February when, even at the peak of China’s outbreak, only 18% were willing to postpone their arrangements this long. 

Sentiment about education is similar. Before the pandemic, about a quarter of parents planned to send their kids abroad for schooling. Now, 73% have delayed their preparations, while 20% canceled them outright. 

Granted, international travel and schooling are expensive, and the middle class may no longer feel as financially secure. Only half of respondents said their employers were back to at least 80% of pre-coronavirus operating levels. 

But geopolitics are also at play. Until recently, Chinese students’ top destinations included the U.S., Australia and the U.K. Now, their families prefer smaller education markets such as Singapore, Japan and Germany. No doubt, Beijing only added fuel to the fire by urging its citizens not to visit Australia, citing racism against Asians

Meanwhile, Beijing’s second wave outbreak coincided with state media reports that traces of the virus were found on chopping boards used for imported salmon. Even though experts later said the fish was unlikely to have carried the disease, consumers nonetheless started to feel that goods produced and sourced locally would be more reliable. The shorter the supply chain, the better, they reasoned. 

This newfound look inward is spilling over to many corners of household spending, giving domestic brands an edge and making China even more protectionist than before.

For starters, let’s look at medical treatment. Just as some Indians have faith in celebrity yogi Baba Ramdev’s Ayurvedic-inspired coronil tablets to fight the virus, the Chinese are reaching back to ancient wisdom, too. In February, 31% surveyed said they would use Western medicine only; now, the figure is 27%. More than half prefer a combination of Western and traditional Chinese medicine. In June, the latest data available, overall sales in this sector rose 9.7% from a year earlier, compared with a retail sales slump of 1.8%. 

Cosmetics — a real bright spot, with a 20% sales jump in June — is another example. Domestic brands such as Proya Cosmetics Co. are on fire, propelled by livestreaming e-commerce, as my colleague Nisha Gopalan wrote. 

Just like everyone else, the Chinese are also spending a lot of time at home, underpinning a 9.8% rise in household appliance sales in June. But even here, brands that have gained the most awareness since the pandemic, according to the CLSA survey, are all Chinese: Zhejiang Supor Co., Midea Group Co., Joyoung Co. and Xiaomi Corp., which makes mobile phones as well as small home gadgets such as hot pot makers, air purifiers and electric toothbrushes.

Global supply-chain disruptions, which started two years ago with the U.S.-China trade spat, were already benefiting Chinese players: They could take advantage of the vacuum and grab market share at home. Now robust consumer demand, triggered as much by fear as patriotism, is doing the other half of the job.

This is good news for Chinese stocks — consumer staples and discretionary sectors tracked by the CSI 300 Index both rose over 40% this year. But it’s an even greater one for a president who’s into self-sufficiency. Consumers, on the other hand, are missing out. They’re becoming even more isolated from international brands than before. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

©2020 Bloomberg L.P.

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