Westpac MNI China Consumer Sentiment Gains Momentum In August - Pickup In Household Finances Leads Improvement

Confidence among Chinese consumers rose for the third consecutive month in August as household finances continued to improve with both current and expected measures increasing solidly after July’s gains. Note that the yuan devaluation and the Tianjin explosion came just before the survey period ended and their impact won’t be fully captured until the September survey.
 
The Westpac MNI China Consumer Sentiment Indicator rose 1.8% to 116.5 in August from 114.5 in July, the highest level since May 2014. Three of the five components of the headline indicator improved in August, with small falls in Durable Buying Conditions and Business Conditions in Five Years outweighed by sizeable increases in both Current and Expected Household Finances and Business Conditions in One Year.
 
The continued improvement in household balance sheets was a joint function of a lessening of anxieties on two key fronts: the labour market and inflation. Consumers were the least dissatisfied with prices since June 2014. Accordingly, the percentage of households that spent more than 50% of their monthly income on daily expenses fell. The employment outlook also improved, correcting much of the sharp fall seen in the prior survey.
 
August saw expectations for stock prices among active investors turn positive following July’s negative reading due to the equity market rout. And the continued improvement in the headline Westpac MNI Consumer Sentiment Indicator suggests the average consumer remains aloof to the rollercoaster ride that is the stock market.
 
The positive tone surrounding expectations for business conditions continued in August. Consumers were more upbeat about Business Conditions in One Year, which now stands at the highest since January 2014, while Business Conditions in Five Years was broadly flat. They were also more optimistic about current business conditions with the indicator now standing at the highest since July 2014.
 
Beneath the surface of the positive overall trend lies a disparity between upper and lower income families (the dividing line is set at CNY 96,000 per year). While confidence among those in the lower income bracket has been going from strength to strength, in the upper income bracket the overall indicator is at the lowest in its history with woes about current finances creating a particular drag. In this regard we note the generous uplift in the minimum wage in many provinces this year; while a renewal of corruption related arrests in recent times may have unsettled some higher income earners.
 
Commenting on the data, MNI Indicators Chief Economist Philip Uglow said, “The unambiguously positive result in this month’s survey reaffirms our view that consumer conditions are well and truly on the mend following some weakness earlier in the year. The cumulative increase in recent months is confirmation that the majority of Chinese consumers have been left unscathed by the volatility in stock prices.”
 
Westpac’s Senior International Economist Huw McKay said that “The Chinese economy remains a major source of concern for global investors. This anxiety is shared to some degree by Chinese households, but where foreign scepticism vis-à-vis growth prospects appears to be deepening, consumers are tentatively marking up growth prospects, albeit from a very low level. With consumption now the most important engine in China’s evolving growth model, this incipient divergence demands close attention.”