Consumers resist bargain bait with economy in flux
02/10/98
South China Morning Post
Page 4 (Copyright 1998)
Oversupply is causing retailers to cut prices, but mainland Chinese are spending more cautiously as fears for their jobs grow. MARK O'NEILL reports from Beijing.
Buy an LG 29-inch television and get a red packet containing 500 yuan (about HK$464). Buy a Philips video compact disc player ( VCD ) and get a lottery ticket to win one of 100 mobile telephones, 500 radios and 500 electric shavers.
It is the fourth floor of the Blue Island department store, where dozens of domestic and foreign brands of televisions and VCDs compete desperately for business. It is the same story in other department stores in the capital - falling prices and give-aways but with limited results.
"There are just too many televisions and VCDs," one blue-uniformed salesman said. "TVs are 20 per cent cheaper than a year ago. There are people buying, but not like before. Many people are out of work and have nothing to spend."
Retail consumption growth, one of the engines of the economy, is falling. In 1997 consumption was 2.72 trillion yuan, an increase of 11.6 per cent over 1996 which was the lowest level of growth since 1990, when the economy was in a government-induced slowdown.
This slowdown reflects a profound change in the spending habits of the 359 million urban Chinese.
For the first 40 years of Communist rule, their budgets were simple. The state work-unit provided a salary, cheap housing, pension and medical benefits and free education for children.
Spending was on food, mostly, and consumer goods. Now the equation has changed. Housing, education, health care and pensions are being monetised - or Thatcherised as some economists call it - and the individual has to pay for them instead of the state.
The cost of these services is rising faster than increases in personal income.
Wang Minqiang, a salesman, said: "We hesitate to spend because we are fearful of the future.
"Many people have been laid off. Will I be laid off too? I pay 50 yuan into an insurance company that will pay me 500 yuan a month when I retire. Medical bills are another worry. The costs have increased sharply and companies pay only a portion. My wife's factory, a state firm making car engines, is doing badly and is behind in wage payments to its staff," he said.
"It has no money for medical bills, let alone costly surgery. Will it be able to pay her pension when she retires? She is likely to be laid off this year."
Of these worries over the future, fear of unemployment looms largest.
In a survey of 5,000 residents from 10 cities published last weekend, 92.7 per cent said unemployment ranked first among their anxieties, followed by 92.1 per cent who were concerned by losses incurred at state firms, and 66.5 per cent who said the social welfare system was insufficient.
Concern about unemployment was higher among those worst hit by it - women and those earning less than 400 yuan a month as well as residents of Beijing, Shenyang and Wuhan, who were more anxious than people in Shanghai, Xiamen and Guangzhou where jobless rates are lower.
They have good reason to worry. Official figures show that 16.3 million urban Chinese are already unemployed or have been laid-off, and 30 million or one-third of state workers are redundant and should be dismissed.
Many believe these figures are too low. Workers laid off by the state sector are likely to find jobs in private, collective or foreign-owned companies or in the service sector - which does not provide them with housing, pension and other benefits.
People are therefore spending less on immediate needs and putting aside more for future ones. Beijing residents last year, for example, spent 8.99 billion yuan on insurance, 90.5 per cent more than in 1996, with 70.7 per cent going on life insurance, including pensions.
All this is bad news for manufacturers, already suffering from a surplus of capacity, especially in consumer goods.
Take colour televisions and VCDs, which should be among the hottest consumer items.
Fierce competition last year drove down prices of colour TVs by between 20 and 47 per cent.
On January 1, domestic manufacturer Haixin offered 600 21-inch sets at a department store in Chengdu for 998 yuan, the first time the price for such sets has fallen below 1,000 yuan. Although the government three years ago forbade the import of new TV production lines, the utilisation rate of existing lines is below 50 per cent.
The situation with VCDs is even worse.
In 1995, output was 220,000, rising to 2.24 million in 1996 and 15 million last year. Capacity this year will reach 50 million.
But demand this year will be only 12 million, up from 10 million last year.
The price of the cheapest VCD fell from 2,700 yuan in 1995 to 1,500 yuan in 1996 and less than 1,000 yuan in the second half of last year.
The weakening of consumer demand is bad news for the government, which is counting on it to help achieve its target of at least 8 per cent economic growth.
The official press talks of cars and housing as priorities for personal spending this year. But, while sales will rise from 1997 levels, they remain out of reach of the majority of urban citizens, unless they can borrow, at cheap rates. |
