Chindia Alert: You’ll be Living in their World Very Soon
aims to alert you to the threats and opportunities that China and India present. China and India require serious attention; case of ‘hidden dragon and crouching tiger’.
Without this attention, governments, businesses and, indeed, individuals may find themselves at a great disadvantage sooner rather than later.
The POSTs (front webpages) are mainly 'cuttings' from reliable sources, updated continuously.
The PAGEs (see Tabs, above) attempt to make the information more meaningful by putting some structure to the information we have researched and assembled since 2006.
BEIJING (Reuters) – Tang Yue, a 27-year-old teacher from the city of Guilin in southwest China, steam-presses a blue dress and takes dozens of photographs before picking one to clinch her 200th online sale.
For a growing number of Chinese like Tang, hit by job losses, furloughs and salary cuts, the consumer economy has begun to spin in reverse. They are no longer buying – they are selling.
Instead of emerging from the coronavirus epidemic and returning to the shopping habits that helped drive the world’s second-largest economy, many young people are offloading possessions and embracing a new-found ethic for hard times: less is more.
With Tang’s monthly salary of about 7,000 yuan ($988), the self-described shopaholic said she has bought everything from Chanel lipsticks to Apple’s (AAPL.O) latest iPad in the past three years.
But the adrenaline rush that comes with binge-shopping is gone, said Tang, whose wages have been slashed with the suspension of all the classes on tourism management she usually teaches.
“The coronavirus outbreak was a wake-up call,” she said. “When I saw the collapse of so many industries, I realised I had no financial buffer should something unfortunate happen to me.”
There is no guarantee that the nascent minimalist trend will continue once the coronavirus crisis is fully over, but if it does, it could seriously damage China’s consumer sector and hurt thousands of businesses from big retailers to street-corner restaurants, gyms and beauty salons.
To be sure, there are signs that pent-up demand will drive a rush of spending as authorities reopen malls, leisure venues and tourist spots. In South Korea, the first major economy outside of China to be hit by the virus, people thronged malls this weekend to go “revenge shopping” to make up for time lost in lockdown.,
There are some signs that a similar trend will take hold in China, where some upscale malls are starting to get busy, although luxury firm Kering SA (PRTP.PA) – which owns Gucci, Balenciaga and other fashion brands – has said it is hard to predict how or when sales in China might come back.
A recent McKinsey & Co survey showed that between 20% and 30% of respondents in China said they would continue to be cautious, either consuming slightly less or, in a few cases, a lot less.
“The lockdown provided consumers with a lot of time and reasons to reflect and consider what is important to them,” said Mark Tanner, managing director at Shanghai-based research and marketing consultancy China Skinny.
“With much more of their days spent in their homes, consumers also have more time and reasons to sort through things they don’t feel they need – so they’re not living around clutter that is common in many apartments.”
#DITCHYOURSTUFF
Tang made a spreadsheet to keep track of her nearly 200 cosmetic products and hundreds of pieces of clothing. She then marked a few essentials in red that she wanted to keep. In the past two months, she has sold items worth nearly 5,000 yuan on second-hand marketplaces online.
Bargain-hunting online has become a new habit for some Chinese as the stigma that once hung over second-hand goods has begun to fade.
Idle Fish, China’s biggest online site for used goods, hit a record daily transaction volume in March, its parent company Alibaba (BABA.N) told Reuters.
Government researchers predict that transactions for used goods in China may top 1 trillion yuan ($141 billion) this year.
Posts with the hashtag #ditchyourstuff have trended on Chinese social media in recent weeks, garnering more than 140 million views.
Jiang Zhuoyue, 31, who works as an accountant at a traditional Chinese medicine company in Beijing – one of the few industries that may benefit from the health crisis – has also decided to turn to a simpler life.
“I used to shop too much and could be easily lured by discounts,” said Jiang. “One time Sephora offered 20% off for all goods, I then bought a lot of cosmetics because I feel I’m losing money if I don’t.”
Jiang, the mother of a 9-month-old baby, said she recently sold nearly 50 pieces of used clothing as the lockdown gave her the opportunity to clear things out. “It also offered me a chance to rethink what’s essential to me, and the importance of doing financial planning,” she said.
Eleven Li, a 23-year-old flight attendant, said she used to spend her money on all manner of celebrity-endorsed facial masks, snacks, concert tickets and social media activity, but now has no way to fund her spending.
“I just found a new job late last year, then COVID-19 came along, and I haven’t been able to fly once since I joined, and I’ve gotten no salary at all,” said Li, who said she was trying to sell her Kindle.
Some are even selling their pets, as they consider leaving big cities like Beijing and Shanghai where the high cost of living is finally catching up with them.
NO RETURN TO OLD WAYS?
As the coronavirus comes under control in China, the government is gradually releasing cities from lockdown, easing transport restrictions and encouraging consumers to venture back into malls and restaurants by giving out billions-worth of cash vouchers, worth between 10 yuan and 100 yuan.
But many people say they are still worried about job security and potential wage cuts because of the struggling economy. Nationwide retail sales have plunged every month so far this year.
Xu Chi, a Shanghai-based senior strategic analyst with Zhongtai Securities, said some Chinese consumers may prove the ‘21 Day Habit Theory,’ a popular scientific proposition that it only takes that long to establish new habits.
“We believe people’s spending patterns follow the well-known theory, which means most people in China, having been cooped-up at home for more than a month and not having binge-shopped, may break the habit and not return to their old ways,” Xu said.
Jiang said she was determined not to return to her free-spending ways and planned to cook more at home.
“I’ll turn to cheaper goods for some luxury brands,” she said. “I’ll choose Huawei’s smartphone, because (Apple’s) iPhone has too much brand premium.”
Tang, who has recently used 100 yuan of shopping coupons to stock up on food, is going to hold the purse strings even tighter.
“I’ve set my monthly budget at 1,000 yuan,” she said. “Including one – and just one – bottle of bubble tea.”
Global retailers are facing scrutiny over cotton supplies sourced from Xinjiang, a Chinese region plagued by allegations of human rights abuses.
China is one of the world’s top cotton producers and most of its crop is grown in Xinjiang.
Rights groups say Xinjiang’s Uighur minority are being persecuted and recruited for forced labour.
Many brands are thought to indirectly source cotton products from the Xinjiang region in China’s far west.
Japanese retailers Muji and Uniqlo attracted attention recently after a report highlighted the brands used the Xinjiang-origin of their cotton as a selling point in advertisements.
“You can’t be sure that you don’t have coerced labour in your supply chain if you do cotton business in China,” said Nathan Ruser, researcher at the Australian Strategic Policy Institute.
“Xinjiang labour and what is almost certainly coerced labour is very deeply entrenched into the supply chain that exists in Xinjiang.”
What is happening in Xinjiang?
UN experts and human rights groups say China is holding more than a million Uighurs and other ethnic minorities in vast detention camps.
Rights groups also say people in camps are made to learn Mandarin Chinese, swear loyalty to President Xi Jinping, and criticise or renounce their faith.
China says those people are attending “vocational training centres” which are giving them jobs and helping them integrate into Chinese society, in the name of preventing terrorism.
What is produced in Xinjiang?
The Xinjiang region is a key hub of Chinese cotton production.
Last year, 84% of Chinese cotton came from Xinjiang, the report said.
That has raised concerns over whether forced labour has been used in the production of cotton from the region.
Image copyright GETTY IMAGESImage caption The Uighurs are mostly Muslims, and number about 11 million in China’s Xinjiang region
Nury Turkel, chairman of the Uighur Human Rights Project in Washington, said the Uighurs were being “detained and tormented” and “swept into a vast system of forced labor” in Xinjiang.
In testimony to US congress, he said it was becoming “increasingly hard to ignore the fact” that the goods manufactured in the region have “a high likelihood” of being produced with forced labour.
Which brands use Xinjiang cotton?
Amy Lehr, director of CSIS Human Rights Initiative, said in many cases Western companies aren’t buying directly from factories in Xinjiang.
“Rather, the products may go through several stages of transformation after leaving Xinjiang before they are sent to large Western brands,” she said.
Some, like Muji, are very open about sourcing material from Xinjiang.
“Uniqlo does not have any production partners located in the Xinjiang region. Moreover, Uniqlo production partners must commit to our strict company code of conduct.
“To the best of our knowledge, this means our cotton comes only from ethical sources,” the spokesperson told the BBC.
Many of the companies looked into the allegations, including those without clear links to the Huafu mill.
In a statement to the BBC, Adidas said: “While we do not have a contractual relationship with Huafu Fashion Co., or any direct leverage with this business entity or its subsidiary, we are currently investigating these claims.”
“We advised our material suppliers to place no orders with Huafu until we have completed those investigations,” the Adidas spokesperson said.
Esprit, which also does not source cotton directly from Xinjiang, said it had made several inquiries earlier this year.
“We concluded that a very small amount of cotton from a Huafu factory in Xinjiang was used in a limited number of Esprit garments,” the firm said in a statement.
The company has instructed all suppliers to not source Huafu yarn from Aksu, the statement said.
H&M said it does not have “a direct or indirect business relationship” with any garment manufacturer in the Xinjiang region.
“We have an indirect business relationship with Huafu’s spinning unit in Shanyu, which is not located in the Xinjiang region, and according to our data, the vast majority of the yarn used for our garment manufacturing comes from this spinning unit,” a spokesperson for H&M said.
“Since we have an indirect business relationship with the yarn supplier Huafu, we also asked for access to their spinning facilities in Aksu. Our investigations showed no evidence of forced labor.”
Image copyrightGETTY IMAGESImage captionThe fact that President Trump’s limousine is a Cadillac is said to have helped the US carmaker’s sales in China
If you’re selling Cadillacs in China, it helps that the US president is driven around in one.
Cao Chenyi, the boss of a Cadillac dealership near Shanghai, told me that customers know that Donald Trump’s presidential limousine is made by the US carmaker. He says they like the prestige.
But Mr Cao’s had a bad year. Demand dropped 30% in 2018. He’s had to shut five of the 11 dealerships his family business owned. Almost half, gone.
“The sales on every new vehicle is causing us to lose money. Basically the more we sell the more we lose,” he says.
Loss leaders are painful. Mr Cao has been forced to shift excess stock, and quickly. The red Cadillac he drove me around in is currently on sale at half price.
Image captionCao Chenyi’s family have had to close five of their dealerships – these customers did not make a purchase
Nationally, 2018 was a very hard year for the car industry in China, the world’s biggest car market.
Inside Mr Cao’s Cadillac showroom various models are side by side. An SUV at the back has a canoe on its roof rack.
I watched a group of three youngish men come in and sit down for the sales treatment. They didn’t buy.
They didn’t even have a good look inside the cars. Mr Cao thinks the main reason is a tax cut that has gone away.
“In 2018 the government cancelled the tax subsidy on car purchases, which was a shock to us,” he says.
This benefit has been gradually wound down. Others think a credit squeeze has caused the demand for cars to drop.
Image captionCao Chenyi thinks that the end of a tax credit is the main reason behind falling car sales
After a decade of near doubling its debt – to almost 300% of China’s GDP – 2018 was the year that the government tried to deal with the aftermath of a credit crisis. That crisis was centred on peer-to-peer lending, known as P2P.
P2P lenders offer loans to individuals from a pool of funds supplied by other individuals and other businesses, thereby cutting out banks.
Cars and houses
Economist Andy Xie says the previously increasing national debt kept demand high, particularly in the property and car sectors.
“Now the property market has tipped over, and it’s affecting a lot of things,” he says.
So why is property so important?
“Auto sales are highly correlated to property sales,” Mr Xie says.
“When people buy property it seems they buy a car at the same time. So when the property market is not doing well the auto demand is down.”
Image copyrightGETTY IMAGESImage captionThe Chinese government is moving to reduce the country’s debt level
The collapse of many of the P2P lending platforms is thought to have had a significant impact on both house and car sales, because borrowed money was being used as down payments for both.
Mr Xie says the credit system “used to be lubricated by these guys” and suddenly that has stopped.
“They lent to people who could not pay back. [Borrowers] shifted their debt from one platform to another.”
He tells me he’s heard statistics suggesting one in four such borrowers “have no ability to pay back”.
Slowing economy
China’s car industry is also a key driver of industrial output and a barometer of consumer demand.
But growth in China’s economy is slowing, and the trade war with the US is starting to bite. Retail sales have slowed to a pace not seen for more than a decade.
A couple of hours away from the car dealership is a tiny hair salon, in the heart of Shanghai’s old west side.
Sun Qiang is the owner and haircutter-in-chief. For a few hours I sat and watched him deal with a handful of customers. First up were three women, two of whom had curlers in, and didn’t look happy to be there.
Image captionHairdresser Sun Qiang is saving money to pay for education and healthcare
He told me he’d cut my hair for 40 yuan ($6; £4.50). His place is at the bottom end of what you might call the barometer of China’s consumption.
But business isn’t dropping off. He is, though, a barber who also cuts women’s hair.
When it comes to cars he’d like a Chinese brand SUV. But it’s not likely any time soon. He doesn’t live that far from work and the buses are good. Plus he doesn’t want to borrow.
“I think some car dealers, they want to boost their sales, so they need such consumers who love to pay by loans,” he explains.
“But as a traditional Chinese person, I think we should only buy stuff that we can afford.”
CHINDIA ALERT: You'll be living in their world, very soon 