Chinese households are ditching riskier assets for the safety of cash

Reuters

Aside from house prices and private sector indebtedness, many things in China are falling at present. Stocks are sliding, so too the yuan, along with a well publicised collapse in bulk commodity futures.

Now you can add consumer confidence to that list.

The Westpac-MNI China consumer sentiment index fell 3.1% to 114.2 in May, wiping out much of the gains achieved earlier in the year.

In this survey a reading of 100 is deemed neutral, meaning the number of optimists and pessimists are equal.

Although overall sentiment levels fell, at 114.2, there are still more optimists than pessimists, continuing the pattern seen since the survey was first established in April 2007.

Reuters

Although broader sentiment weakened, the scale of the decline was not consistent with sentiment in the east holding up far better than in other parts of the country.

“The survey revealed a disparity between consumers in East China and those in Middle/West China,” said Westpac.

“Highlighting the gulf between the developing west, which has been the hardest hit by overcapacity and the slowdown growth, and the relatively more consumption-driven east, consumer confidence plunged 7.6% in Middle/West China compared with a more muted 0.9% drop in East China.”

According to Westpac, all of the surveys five subindices weakened during the month with “the most significant adjustment occurring in consumers’ assessment of their household finances, which had a flow on effect on durable buying conditions”.

“The current personal finances indicator fell 5.5% in May to 104.3, while expectations for personal finances fell 2.8% to 112.8,” said Westpac.

Underlining the heightened uncertainty about income levels, whether now or in the future, respondents indicated a reluctance to invest in riskier asset classes.

“The heightened uncertainty about family income saw respondents turn more risk-averse when choosing a destination for their savings, highlighted by a series high 56.7% nominating bank deposits as the wisest place for savings,” noted Westpac.

“The share of respondents nominating riskier options like wealth management products and real estate declined. Accordingly, reasons for saving turned more precautionary with 33.7% of respondents saving to self-insure against future loss of income.”

Fitting with the deterioration sentiment towards personal finances, the surveys durable buying conditions indicator — a measure on consumer spending — fell by 4.2%, taking the subindex to 104.0.

Outside of finances, sentiment towards the outlook for business conditions also weakened. Perceptions looking one year ahead fell 3.0%, outpacing a 0.5% decline in expectations for the five years ahead.

Though just the results of one survey for one particular month, it hints that the rebound in economic activity seen in recent months has has not been felt on the ground in many parts of the country, underlining the challenge facing policymakers as they attempt to rebalance the economy away from its industrial past to a consumer-driven future.

The deterioration in sentiment towards the housing market is also worthwhile noting, particularly as policymakers appear to be relying upon higher house prices to generate greater levels of household spending and increased construction activity in order to underpin economic growth at present.

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