Westpac MNI China Consumer Sentiment Indicator Falls In May - Slowing Economy Weighs On Household Finances

Chinese consumer sentiment declined in May, eroding further the significant gain seen in March, as consumers turned more risk averse. 
 
The Westpac MNI China Consumer Sentiment Indicator fell 3.1% on the month to 114.2 in May from 117.8 in April. All components of the headline indicator contributed to the fall, with the most significant adjustment occurring in consumers’ assessment of their household finances, which had a flow on effect on durable buying conditions. The assessment of business conditions fared relatively better, although even there the outlook deteriorated.
 
Following the more upbeat readings in February and March, the Current Personal Finances Indicator fell 5.5% in May to 104.3, while Expectations for Personal Finances fell 2.8% to 112.8. 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. 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.
 
On spending in general, consumers revised back some of last month’s gain although retained a bias towards increasing spending across most categories. The Durable Buying Conditions Indicator fell 4.2% to 104.0 in May, while sentiment on buying phones, computers and appliances all fell following a strong April.
 
With the latest official data showing a resumed slowdown in industrial output, consumers tempered their assessment of the business environment. The Business Conditions in One Year Indicator fell 3% to 115.7 in May while the five-year ahead measure declined 0.5% to 134.1.
 
May’s survey revealed a disparity between consumers in East China and those in Middle/West China. 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. The gap between regional centres was even greater; consumer confidence saw a 10.3% rise in Beijing compared with a 6.6% fall in Guangzhou. Note also that while sentiment fell across all three main age ranges, it was the fall in the 34-54 cohort that drove the decline.
 
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “While headline consumer sentiment declined in May, it still remains above the recent lows seen in Q4 2015, following two strong months in March and April. Still, the latest results saw consumers turning significantly more risk averse, underlining how worried many are about their current and future financial situation.”
 
Westpac Senior Economist Matthew Hassan said, “Chinese consumers look to be paring back their optimism. That seems understandable given family finances are still reportedly coming under pressure and the hoped for business recovery is yet to show through convincingly. While the overall mood still looks more positive than late last year and key areas such as employment expectations posted a notable improvement in May, the more tentative, risk averse tone to the May survey responses suggests that, at the margin, Chinese consumers are taking a more cautious approach to spending and financial decisions.”