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Mainland consumers flock to fairs such as this in Guangdong, where the market has greater breadth
and depth
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Though the Chinese mainland economy has not escaped unscathed from the global economic downturn, the performance of the country's overall consumer market can be described as outstanding compared to overseas markets.
Take the car market. Auto sales on the mainland in the first quarter overtook those in the United States, becoming the world's largest market for automobiles. Car sales on the mainland have actually slowed down, but with auto sales in the US plunging as a result of the economic crisis, the Chinese market has become a real sales engine. No wonder the CEO of Rolls Royce remarked that the Chinese market is the key to making or breaking a car company.
In fact, the overall mainland consumer market is faring much better than the European and American markets. In the first quarter, retail sales in the US were down by about 10 per cent from a year earlier, while retail sales in Japan dropped four per cent. In Europe, retail markets in such countries as Germany and the United Kingdom showed various degrees of contraction in recent months.
Compare those performances to the mainland, where first quarter retail sales of consumer goods registered a robust 15 per cent growth.
Real Growth
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Mainland retail sales saw robust growth in the first quarter of the year amid the global
economic downturn
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While the mainland consumer market has performed far better than those overseas, its growth has also slowed in recent months. Though retail sales rose 21.6 per cent in 2008, they increased only 15 per cent for the first quarter of 2009. Does this imply that the mainland's measures in stimulating domestic demand have failed to achieve their intended results? Or, even more crucially at the commercial level, that efforts to develop domestic sales are doomed?
It should be noted that growth figures quoted above are those before price adjustments were made, and are nominal growth rates. On the mainland, mainly food-led consumer price increases began to appear in the second half of 2007 and only eased gradually after April 2008. Hence, part of the sharp rise in retail sales in 2008 was attributable to price increases.
Nevertheless, after excluding the price inflation factor, the mainland consumer market still posted a more-than-respectable real growth rate of 15.7 per cent in 2008. In the first quarter, such real growth did not abate, but instead continued to grow by as much as 15.9 per cent. Inland provinces and cities such as Hubei, Hunan and Chongqing even recorded growth of more than 20 per cent.
Inland Bright Spots
The impact of the global financial crisis on the mainland economy is reflected most directly in the decline in export trade. This will probably have a greater effect on provinces with an export-led economy. Available information indicates that the first quarter GDP of Guangdong Province grew by 5.8 per cent, which is lower than the national average, while the growth rate for Zhejiang Province substantially slowed, to 3.4 per cent.
To a certain extent, industrial production activities can reflect the effects of export contraction in different regions. So, in major coastal export-oriented provinces such as Guangdong and Zhejiang, industrial value-added for the first quarter edged up only 0.9 per cent in the former and even dropped by 5.6 per cent in the latter. On the other hand, considerable growth was maintained in some inland provinces such as Hunan and Sichuan, which posted 19 per cent and 18 per cent growth respectively during the period.
A consequence of this range of value-added performances is that several externally oriented consumer markets have been growing at a slower rate. For example, while retail markets in Shanghai and Zhejiang registered 13.3 per cent and 14.8 per cent growth respectively in the first quarter, Hubei, in central China, grew by almost 22 per cent.
The sustained rapid growth of consumer markets in inland or non-externally oriented regions has continued to boost confidence. There have also been market opportunities for those companies intending to launch domestic sales and preparing to venture into second- or third-tier cities as a way of building a regional or national sales network.
Though growing more slowly, the coastal areas still have consumer markets of greater breadth and depth – larger consumption scale and more consumption levels – so their ability to take in consumer goods of different types and different grades should not be overlooked.
For more on market opportunities, please see the June issue of HKTDC Trade Quarterly, which can be ordered at www.hktdc.com/bookshop.
