China Forum Blog

If you want to reach young Chinese consumers, your best bet is to focus your efforts on the Web.

Youth consumers in China are spending an increasing amount of time online, according to a July 2010 report by Euromonitor International. The report cites figures from the PRC’s China Internet Network Information Centre, which found that 195 million people under 25 regularly browsed the Web by the end of 2009. Young consumers devoted an average of 16.5 hours to surfing the Internet each week, with the most popular activities being listening to music, playing games, watching video and chatting.

Euromonitor found that some young Chinese consumers even chose to spend the usually week-long Chinese Lunar New Year holiday at home, where they shopped online, sent virtual greetings to relatives and friends, and enjoying virtual fireworks. Traditionally, the Lunar New Year is a time for Chinese to be with family, relatives and friends, as well as an opportunity to visit temple fairs to buy new clothes and traditional head coverings.

“I remember Spring Festival being the most important festive event that brought a sense of happiness to Chinese people. But nowadays, the holiday brings few surprises. I usually feel tired during the week and would rather stay at home,” said 24-year-old Li Ying, who works at a state-owned company in Guizhou province.

Some Shanghai media reports attributed the online festive activities, popular among Chinese aged 25 to 35, to the small size of modern Chinese families and their weak sense of participation. “Most Chinese born between the 1970s and 1990s belong to the only-child generation. They have been influenced by cyberspace and have had their will to communicate face-to-face weakened,” said Zhai Li, professor at Northwest A&F University in Yangling.

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Property sales by value in China rose more than 70 percent in the first two months of the year, according to the National Bureau of Statistics of China. In January and February alone, property sales by floor area increased 38.2 percent while property investments rose 31.1 percent.

China’s banking regulator plans to take a closer look at risk from non-banking financial institutions this year in yet another attempt by the government to curb runaway lending.

The China Banking Regulatory Commission announced on its Web site that it will emphasize “researching and regulating cooperation between banks and trusts, cooperation between trusts and local governments, financing platforms and debt risks.”

Chinese banks started temporarily selling loans to trusts to move them off their balance sheets. Chinese regulators worry that this was helping banks meet loan targets or regulatory capital requirements, according to Dow Jones.

China’s container shipping rates will rise this year due to high demand, according to a report. “The rates will probably be higher in the first six months of 2010 before tapering off in the second half,” China Shipping Container Lines Co.’s Chairman Li Shaode told BusinessWeek.

Container volume shipped in the first two months of 2010 rose 30 percent from the same period last year, said Li said, who added that his company will not add capacity to meet the heightened demand.

The U.S. has imposed new duties on Chinese products — this time glossy paper used for magazines and fertilizer additives. The Commerce Department slapped Chinese magazine paper companies with duties ranging from 3.92 to 12.83 percent while potassium phosphate salts used in fertilizers has a duty of 109.11 percent.

The two new duties are part of an escalating trade dispute between U.S. and China. The Obama Administration believes China is dumping subsidized and cheap products on the American market. China in response is angry about the growing list of duties, including tires, steel and chickens.

The U.S. imported $228.7 million of coated paper from China in 2008 while imports of certain potassium phosphate salts totaled $16.4 million, according to Reuters.

Efforts by the Chinese government to boost spending by rural consumers seems to be working.

Retail sales in rural China jumped 16 percent to $589 billion last year, according to a Reuters report, thanks in large part to a domestic stimulus package even larger than America’s version. And with more than two-thirds of China’s population living in rural areas, the opportunity for retailers is enormous.

Suning, the country’s largest electronics chain, plans to add 520 new stores in 2010. Rival GOME will partner with smaller, rural retailers. Meanwhile, Wal-Mart, Best Buy and France’s Carrefour are planning to expand in to second and third-tier cities.

Currently, independent local retailers control more than 50 percent of the rural market.

China’s central bank could ask banks to set aside more reserves for a third time this year, according to one published report.

The PBOC is considering the move in response to a record amount of maturing bills this month, according to a Businessweek interview with Linan Liu of Deutsche Bank AG. Nearly $130 billion of debt will mature this month, according to DB, flooding China with even more cash and heightening inflation fears for Chinese consumers. The PBOC may increase its cash-reserve ratio by 50 basis points to 17 percent as a precursor to raising interest rates, she said.

Here’s what Qu Hongbin, HSBC’s Chief Economist for China, had to say about the PBOC’s recent decision to raise the RMB reserve requirement ratio for depository financial institutions by 0.5 percent.

What is the impact of this action on Chinese businesses and consumers?
This will not have any material impact on China’s real economy. Restrictions on bank lending for new infrastructure projects and the industries with excess capacity will only help to contain overheating risks, while Beijing is likely to expand lending support on small and medium sized enterprises. A slowdown in new infrastructure projects will cut into lending to this sector — the key driver behind 2009’s explosive loan growth. To maintain profit growth, China’s banks must find new areas in which to expand their lending. We believe that consumer credit is likely to become the alternative engine for loan growth in the next few years because it is the biggest untapped market in China. Demand is not an issue, given young consumers’ appetite for durables.

What is the impact of this action on American companies doing business in China?
This will have minimal direct impact on American companies operating in China. China is likely to remain an out performer with faster growth this year, which means opportunities for foreign companies doing business in China. The lending restriction on new infrastructure projects and excessive capacity sectors would help to ensure sustainable recovery, rather than squeezing credit to private sectors.

Why do you think China is doing this now?
Liquidity remains excessive despite the twice RRR (reserve ratio requirement) hikes this year. The excessive credit growth last year, plus the strong lending in January, fueled the inflation expectation. Signs of overheating risks have been emerging given the accelerating economic activities, rebounding inflation and the recovery in exports. Therefore it is important for the central bank to continue to closely monitor credit growth to contain overheating and inflationary risks. But the monetary tightening will be gradual focusing on quantitative tools such as RRR hikes.

China will allow margin trading and short selling by the end of March, according to the state-run China Securities Journal and Reuters. Approximately five to seven brokerages will receive licenses. The development represents an expansion of a pilot program begun in January. A stock index futures program also is due to launch, although no date has been reported for that program either.