Frugality is the new cool for young Chinese as economy slumps

Frugality is the new cool for young Chinese as economy slumps

BEIJING, Sept 19 (Reuters) – Before the pandemic, Doris Fu envisioned a different future for herself and her family: new cars, bigger apartments, weekend treats and vacations on tropical islands.

Instead, the 39-year-old Shanghai-based marketing consultant is one of many Chinese in their 20s and 30s trying to get as far as they can amid China’s coronavirus lockdown, high youth unemployment and a faltering property market. Cut spending and save cash.

“I don’t do manicures anymore, I don’t do hair anymore. All my makeup is made in China,” Fu told Reuters.

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This new frugality, amplified by social media influencers touting low-cost lifestyles and sharing money-saving tips, threatens the world’s second-largest economy, which narrowly avoided a contraction in the second quarter. Consumer spending accounts for more than half of China’s GDP.

Benjamin Cavender, managing director of China Market Research Group (CMR), said: “We’ve been mapping consumer behaviour here for 16 years, and during that time, this is the young consumer I’ve seen. most concerned about.”

China’s “zero-coronavirus” policy – which includes strict lockdowns, travel restrictions and mass testing – has hit the country’s economy hard. The government crackdown on big tech companies has also had a huge impact on the young workforce.

After hitting a record 20% in July, the unemployment rate for 16- to 24-year-olds is approaching 19%, according to government data. Some young people have been forced to take pay cuts, for example in retail and e-commerce, according to two industry surveys. Average wages in 38 major Chinese cities fell by 1 percent in the first three months of this year, according to data compiled by online recruitment firm Zhilian Zhilian.

As a result, some young people would rather save than splurge.

“I used to go to two movies a month, but since the pandemic, I haven’t been in a movie theater,” said Fu, an avid movie fan.

Retail sales in China rose just 2.7% year-on-year in July before recovering to 5.4% in August, but still well below the 7%-plus levels seen in most of 2019 before the pandemic.

According to the most recent quarterly survey by the People’s Bank of China (PBOC), China’s central bank, nearly 60% of people now prefer to increase their savings rather than increase consumption or investment. That figure is 45% of what it was three years ago.

In the first eight months of this year, Chinese households added 10.8 trillion yuan ($1.54 trillion) in new bank savings, up from 6.4 trillion yuan a year earlier.

That’s a problem for Chinese economic policymakers, who have long relied on increased consumption to fuel growth.

China is the only major economy to cut interest rates this year to stimulate growth. China’s big state-owned bank cut personal deposit rates on Sept. 15, a move aimed at curbing savings and boosting consumption.read more

In response to the rise in people’s willingness to save, People’s Bank of China officials said in July that when the epidemic eases, investment and consumption will “stabilize and pick up.”

The People’s Bank of China did not respond to Reuters’ request for comment; neither did China’s Ministry of Commerce.

“Ten Yuan Dinner”

After years of rising wages, easy credit and a growing frenzy of consumerism fueled by online shopping, China’s young people’s shift to frugality has brought them closer to their more cautious parents, whose memories of the depression years before the economy took off make them more tend to save.

“Under the tough job market and the strong downward pressure on the economy, young people have a sense of insecurity and uncertainty that they have never experienced before,” said Chen Zhiwu, chair professor of finance at the University of Hong Kong Business School.

Unlike their parents, some are showing off their frugality online.

A woman in her 20s in the eastern city of Hangzhou, using a handle to pull Jiang, posted more than 100 videos on how to make a 10-yuan ($1.45) dinner on lifestyle app Xiaohongshu and streaming site Bilibili , gained hundreds of thousands of followers.

In the one-minute video, which has nearly 400,000 views, she uses a pink chopping board and a pink rice cooker to fry a dish of 4 yuan pangasius, 5 yuan frozen shrimp and 2 yuan vegetables.

Social media has sprung up to share money-saving tips, such as the “Earn 1,600 a month challenge” in Shanghai, one of China’s most expensive cities.

In 2019, Yang Jun started a group on the social networking site Douban called “Low Consumption Research Institute”, which claimed to be mired in credit card debt before the pandemic. The group has attracted more than 150,000 members. Yang said she is cutting expenses and selling some of her items on second-hand websites to raise money.

“COVID-19 has made people pessimistic,” the 28-year-old said. “You can’t spend all the money you’ve earned and make it back next month, like you used to.” She said she’s now paid off her debts.

Yang said she no longer drinks Starbucks coffee every day. Fu said she switched her brand of makeup powder from Givenchy to Chinese brand Florasis, which is about 60 percent cheaper.

French luxury brand leader LVMH (LVMH.PA) and coffee giant Starbucks (SBUX.O), which own Givenchy, both said sales in China fell sharply in the latest quarter.read more

China has given no signal on when or how to exit its zero-coronavirus policy. While policymakers have taken a variety of measures to stimulate consumption, from subsidies for car buyers to shopping vouchers, more money and attention has been directed towards building infrastructure to stimulate the economy.

Stability has been a key theme for Chinese policymakers this year, experts say, as President Xi Jinping prepares for a third leadership term at next month’s ruling Communist Party congress.

“In the past, when the economy slowed, consumers were more likely to think government policy would fix the problem soon,” said CMR’s Cavender. “I think the challenge now is when you interview younger consumers, they don’t really know what the future holds.”

Marketing professional Fu said she has delayed plans to sell her two small apartments, buy a larger one for her son in a better school district, and temporarily abandoned plans to upgrade from a VW Golf.

“Why don’t I have the money to upgrade my house and my car?” she said. “Everything is unknown.”

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Reporting by Albee Zhang and Tony Munroe Editing by Bill Rigby

Our Standard: The Thomson Reuters Trust Principles.

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