In China, multinational manufacturers are confronting a first-in-a-generation structural slowdown. Vigilance is in order. Panic is not. The bottom will not fall out of the market but some sectors may enter a state of suspended animation.
Chinese consumers, even the most upwardly-mobile ones, are cautious even in the best of times. And China’s Millennials, the so-called “Post 90s” cohort, are a particularly wary lot. For the past decade, seven million people have entered a tight job market every year.
Household savings rates will always be higher than in Western countries because institutions that protect individual financial interests are nascent. And acute uncertainty provokes profound anxiety. Swooning stock markets and abrupt currency lurches exacerbate a sense of pervasive vulnerability.
However, let’s keep in mind a couple reassuring facts. For the past several years, incomes of mass market consumers, particularly in lower-tier cities, have risen. This is why Chinese exports are no longer as competitive as they were five years ago.
And the slowdown will affect geographic regions differently. The northeast “rust belt” and western provinces are in for particularly tough times. But these areas, dominated by heavy industrial and agriculture sectors, are perpetually penny-pinched. So their impact on national consumer spending on could be muted. (It is a misconception that city “tier” and geography are one and the same. In both coast and inland areas, lower-tier cities are often near to first- and second-tier cities.)
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