The absolute level of the CSI indicates that Chinese consumers are still anxious about their personal financial wellbeing and the economy more broadly, despite the major shift in the policy stance since late last year.
Note that the 100bp cut in the required reserve ratio (April 20) is fully captured by this survey, whereas the 25bp lending rate cut announced on May 10 came at the end of our sampling period and is thus only partially reflected in these results.
Three of the five components that go into the calculation of the Westpac MNI China CSI decreased from their April levels. The major negative impulse came through in expected business conditions, while expected family finances and ‘time to buy a major household item’ improved. Current business conditions (not part of the composite, but closely correlated with the PMIs and IP) moved lower. This outcome does not bode well for the forthcoming round of hard activity data.
The May headline result was biased lower by a dramatic shift towards pessimism among the 55-64 age group (~15% of the sample). Excluding this cohort, the Westpac MNI China CSI increased by 1.9pts from 111.8 in April to 113.8 in May. It is encouraging that the younger cohorts who are most active in the twin processes of household formation and durables accumulation, and are thus more likely to take advantage of policy incentives, are more optimistic than their elders.
Investment preferences tilted further in the risk-seeking direction in May. Both domestic real estate and, naturally, the booming share market, attracted a greater share of adherents. The scale of these gains is still relatively modest though, implying there remains plenty of room for a rebalancing of portfolios towards these asset classes.
Our categorization of risk averse vs risk seeking asset classes resulted in an approximate ratio of 46/54 in May. There has been a pronounced risk seeking shift over the last two months from the 53/47 reading in March. Other aspects of the survey indicate that the equity boom is not yet having a major impact on the conservative financial mind-set of the ordinary Chinese citizen. The rate of saving out of income is still well above average and the proportion of income used for active investment is still well below average.
The employment indicator declined by a cumulative 11.3% between May and October 2014 and has since gained just 2.0%. The latest reading is 9.2% below long run average. Ergo, in absolute terms job securityremains in short supply. This possibly explains why despite this year’s generous minimum wage increase,low income respondents are relatively less optimistic than their higher earning counterparts.
The consumers’ attitude towards real estate improved on a broad front in May, following on from the modest cumulative improvement in Nov-Apr. The four major indicators, namely house price expectations; ‘good time to buy a house’; and the relevant components of ‘wisest place for savings’ and ‘motivation for saving’ all improved, albeit modestly. This is the definitively positive directional reading on housing that we had hoped for in April, post the easing of LVR restrictions. We argued then that perhaps it would be a case of delayed gratification. Count us as relieved, but not surprised then, to see the broad based gains documented above.
We noted the clear improvement in the official April updates on housing prices and sales volumes with considerable interest. The inference is that consumers now have evidence of a market consolidation in a reasonably sized minority of cities, as well as the reality of easier policy, to underpin expectations of an improvement in overall real estate conditions. While in aggregate the market is still facing downward pressure from over-supply in a large number of small and/or inland cities, which will hold back the timing of any recovery in starts, it does appear that the early stages of a tier-1 led healing process is now underway.
Confidence in the share market performance of firms with real estate linkages rebounded from depressed levels a month ago, with the lift concentrated on real estate ‘proper’, with steel and building materials firms seeing little change. In May, these latter two sectors saw a clear increase in adherents, which more than offset a modest drop-off in expectations for real estate ‘proper’.
Lastly, responses on buying conditions improved on a broad front, with the notable exception of cars. Counter to that, more households are actually planning a car purchase over the coming year. Perhaps this increase in prospective demand is allowing dealers to negotiate from a stronger position than in the recent past. In terms of concrete spending plans, expected outlays on shopping, entertainment and western style fast food increased (although all remain below average), while traditional dining out fell back.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
