Westpac MNI China Consumer Sentiment Slumps In October - Reality Bites As Consumers Downgrade Confidence Across The Board

Chinese consumer confidence seemingly underwent a reality check in October, wiping out the gains accumulated since May. Consumer confidence has been one of the few bright spots for the Chinese economy and the latest fall is a blow. The household sector has, up until now, been resilient in the face of weakness in the heavy industrial, export and construction sectors.
 
The Westpac MNI China Consumer Sentiment Indicator plunged 7.2% to 109.7 in October, registering the lowest value since the survey began in 2007. In a more recent context, the indicator now stands at a similar level to the troughs reached in October 2014 and April-May of this year. There was a renewed sense of pessimism across all components of the headline indicator, with the largest downgrades reserved for the outlook for business conditions, while household finances were also weaker, but remained in comparatively better shape by historical standards.
 
The drop in confidence was most acute among 35 to 54 year olds, with sentiment plunging 11.2% between September and October. In contrast confidence among the youngest and oldest age cohorts (18-34 and 55-64) declined more moderately by 3.3% and 3.2% respectively. Historically the younger cohort has been more optimistic than their middle aged peers, although this gap has closed in the past two years with the 35-54 grouping becoming more optimistic on a six-month trend basis leading in to the October capitulation. As always, we counsel caution with regards to extreme volatility in the age cohorts of the survey. 
 
The business outlook over the coming year was the hardest hit, with Business Conditions in One Year registering a 10.3% decline, while Business Conditions in Five Years fell 8.2%. Closer to home, both the current and expected measures for household finances were also weaker, down 5.3% and 7.3% respectively. On the former topic, we found the previous level of the business conditions questions difficult to reconcile with the discouraging official data on industrial production. This correction lower reinstates something closer to the close historical correlation between the survey and the official data.
 
Despite the deterioration in household balance sheets, the risk profile of respondents held relatively firm. Although bank deposits extended their lead as main choice for wisest place for savings, real estate continued its recent renaissance and also increased its share. In contrast, more respondents said that they were planning on reducing their shopping and entertainment activities in the near term.
 
Commenting on the data, MNI Indicators Chief Economist Philip Uglow said, “When it comes to consumer sentiment this year, it’s been a case of up by the stairs, down by the elevator. Although there’s no escaping the challenges faced by the Chinese economy at the moment, we’ve seen confidence react positively to policy announcements in recent history and given the volatile environment we find ourselves in, we caution against placing too much emphasis on one month’s result.”
 
Westpac’s Senior International Economist Huw McKay said that “This result openly questions the resilience of the Chinese consumer to the discouraging state of the real economy. While it was understandable that consumers stood aloof from the volatility in the equity market earlier this year, given their low median exposure, there is no escape from the reality of an economy whose traditional growth engines are sputtering, thus threatening the outlook for jobs. I expect further efforts to support the economy will emerge in due course.”