Pictured here is a science-fiction themed installation at the Maison Hermes in Shanghai, China, on Nov. 28, 2022.
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BEIJING — Wealthier Chinese were more inclined to spend this year, while poorer people cut back on spending even more, McKinsey and Company found in a survey released Thursday.
The divergence contrasts with 2019, before the pandemic, when “there was little differentiation in spending between the two groups,” the McKinsey analysts said. They noted an official measure of consumer sentiment in China dropped this year to an all-time low.
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Lockdowns and travel restrictions to control Covid outbreaks in China grew more widespread this year as the more contagious Omicron variant entered the country. A property market slump also dragged down the economy.
However, more than a quarter — or 26% — of people with an annual household income above 345,000 yuan ($49,286), said they increased spending by 5% or more from last year, the survey found.
Only 14% of that income group said they significantly cut their spending.
The more affluent group continues to spend, while lower-income groups are more hesitant and hold spending decisions
The trend reversed for those with far lower income, below 85,000 yuan a year. Just 12% said they increased spending, while 27% scaled back, the report said.
“The more affluent population is more confident about their personal wealth and future prospects,” McKinsey told CNBC in a statement. “They remain relatively more confident about keeping employed in the future and anticipating salary increases in the future. They also typically already have higher savings.”
“So, the more affluent group continues to spend, while lower-income groups are more hesitant and hold spending decisions.”
Across all income categories, the majority — or about 60% — reported no change in spending this year. The share of the wealthiest that said they spent more was also ten percentage points smaller than the 36% reported in 2019.
McKinsey’s survey of more than 6,700 Chinese consumers was conducted in July.
In the months since, national data on retail sales has slumped as Covid controls tightened in major cities such as Beijing and Guangzhou.
The share of urban households wanting to save “for a rainy day” rose to 58% — its highest since 2014, the McKinsey survey found.
On top of reporting higher savings, more than half of the respondents still expected their household income to increase significantly over the next five years. However, the share ticked lower, to 54% this year from 59% in 2019.
More households grow wealthier
Looking ahead, McKinsey expects the number of urban households in the lower income category to decline in the next three years, while millions more enter a more affluent group.
The analysts noted a separate survey in August found that China respondents had far stronger expectations about a post-pandemic economic rebound than consumers in the U.S., U.K. or South Korea.
Only India and Indonesia had a larger share of optimistic consumers than China, the report said.
“Higher-income earners are reducing their purchase frequency, or changing their preferences in certain categories, rather than switching to cheaper brands or products,” the analysts said.
“This is facilitated by brands, particularly domestic ones, upping their game and offering more widely differentiated products.”
Watching more videos
Chinese consumers are increasingly turning to local brands and livestreaming platforms.
Chinese consumers surveyed in August said they spent an average of nearly two hours a day watching content on short-video platforms such as Douyin, the report said.
“The transition which has happened over the last 18 months is from an engagement channel to really a commerce channel,” said Daniel Zipser, senior partner at McKinsey and leader of the Asia consumer and retail practice.
“In order to be successful on social commerce, it’s not only about having a great streamer, also a great product, [but] to have the content to bring that alive,” he said. While local companies can often adapt quickly to new consumer trends, “foreign brands and foreign companies always struggle given the internal approval processes to be as fast.“
Read More: Rich Chinese keep spending while others cut back: McKinsey survey