China's growth in peril as young become thrifty

MICHAEL WEI

BEIJING Reuters

China's office workers are tightening their belts, cutting back spending on everything from clothes to fast food, despite government efforts to boost consumption to stave off the worst effects of a global recession.

Websites and blogs popular among young Chinese professionals are extolling the virtues of frugality as the global financial crisis bites China's economy.

Wang Hao, a 24-year-old Beijing office worker, launched a campaign in June to get people to curb weekly living expenses to 100 yuan ($17.44). So far, he said, he has 55,000 participants.

“The financial crisis has apparently given a lesson on spending to young people in China, including me,” said Mr. Wang, who posted his campaign on a popular forum and on his blog, at http://blog.soufun.com/whblog. The blog has had 178,000 hits.

China has enjoyed phenomenal economic growth for years, boosting its domestic consumption. Young consumers, mostly in their late 20s and early 30s, would spend as much as they earned, if not more, on designer clothes, electronics, entertainment and a wide variety of consumer goods.

Now, at least, some are becoming thrifty.

Besides Mr. Wang's cost-cutting crusade, another website is running a similar “100 yuan for a week” campaign, and still other Internet forums and websites offer budget tips, including recipes for meals that cost less than 10 yuan.

One website offers Ten Mottos For Financial Winter, with a list that includes information on employment, starting a business, buying a car and having a baby.

These cost-cutting campaigns are in sharp contrast to a government drive to encourage spending amid rising unemployment and slowing retail sales, as the global economic crisis hits Chinese manufacturers with cancelled orders and factory shutdowns.

Officials in Beijing are determined to “protect eight,” shorthand for the goal of achieving 8-per-cent growth this year.

That is the minimum rate deemed necessary to maintain social stability and provide jobs for the more than 15 million people that enter China's job market every year.

It is a top priority of the Communist Party and the government has allocated four trillion yuan in spending to help achieve the goal. However, some economists wonder whether that will be enough to prop up domestic spending.

While still mostly a grassroots campaign, cost-cutting drives are indicative of slumping consumer confidence in China and could take a toll on the economy if they become even more widespread, said Lin Songli, a senior analyst with Guosen Securities in Beijing.

“Though not quantifiable, confidence is crucial for the economy,” he said.

About 46 per cent of Chinese last November said their country's economic situation was “good,” compared to 90 per cent in 2007, according to an Ipsos Reid survey published in December.

Jun Ma, chief China economist at Deutsche Bank in Hong Kong, said he expected retail sales to grow just 13 per cent this year, partly owing to fast-falling prices. Retail sales are projected to have grown about 21 per cent in 2008.

Like their counterparts in the West, young Chinese white-collar workers in big cities such as Beijing, Shanghai and Guangzhou tend to overspend.

A Shanghai government survey last November said office workers in the Chinese financial hub spend an average of 2,500 yuan a month.

With an average monthly income in Chinese cities of 2,192 yuan, according to government statistics in September, that means many office workers are spending more than they earn.

Expensive products such as electronic gadgets and luxury goods have sold extremely well in China, especially among young professionals all too willing to shell out their entire paycheques to buy such items as an Apple iPhone.

“I've changed my cellphones every six months since graduating from college,” Mr. Wang said.

“But [with] the global financial crisis … I'm feeling pressure from my company, which has foreign stakes,” he said, explaining that he was worried about losing his job.

It's such concerns that are prompting young Chinese professionals to curb their spending, even if most don't go to Mr. Wang's extreme of limiting expenses to 100 yuan a week.

As for Mr. Wang, he is still grappling with the challenge of getting by on such a small amount for all meals, transportation and entertainment costs. In Beijing, 100 yuan buys nine Big Mac burgers at McDonald's, roughly half a tank of gasoline, a monthly home Internet connection or two movie tickets.

To cut costs, Mr. Wang now eats steamed buns for lunch instead of pizza, and he cycles for 20 minutes to work every day, instead of taking buses.

“The point is not only saving money, but to lead a quality life with lower cost,” said Lin Yufei, 24, who launched a group titled Let's Have A 100 Yuan Week on popular Chinese social networking website douban.com.

“I spend 10 yuan to commute to work every day, which leaves me only 50 yuan for living,” complained one website participant using the moniker “Traffic cost is a problem.”

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