Magazines Archives - 2011 September

Asia’s retail powerhouses – China and India, the emerging global powerhouses; Down but by no means out
Story 4 - Focus

If one looks purely at the figures, consumer confidence is either moribund or has fallen in China and India.

According to the Nielsen Global Consumer Confidence Survey for the second quarter of 2011, consumer confidence in China dropped by three points to touch 105. In India, the confidence dipped by five points during the same period to hit 126, with this being the first such dip in three years, the last one being in the last quarter of 2009.

However, having said that, China and India still figure high in the confidence index, ahead of the US, the UK and Germany in the developed world and countries such as Singapore, Australia, New Zealand and South Korea.

In fact, while releasing the report, Nielsen noted India’s consumers continue to be “the most optimistic globally, their optimism driven by job prospects and the state of their personal finances”.

As Justin Sargent, managing director for Consumer Business at Nielsen India, says: “I don’t think we would like to comment on a projection of medium- to long-term impact on retailing, specifically as a result of [the] temporary dip in consumer confidence. But the consumer confidence survey does show that the Indian consumer has reallocated his discretionary spends mainly due to the rising cost of essentials.”

In China, things are not that distinctly different. As Nielsen notes, confidence continues to strengthen in rural areas as government measures boosted investment and farmers’ incomes. The confidence and willingness of urban dwellers weakened as consumers expect higher prices.

“Increasing consumer prices and also stock market volatility are two of a number of factors that appear to be affecting consumer attitudes in this latest quarter,” observes Mitch Barns, Nielsen’s Greater China’s president.

The burgeoning middle class

Clearly, both China and India hold similar promise in the medium term. Both economies offer a large and growing consumer base, a base that is broadly similar. Thanks to economic development, not only are a large number of the two countries’ poor being raised to the rungs of the consuming middle class, but middle-class consumers are also being lifted to join the ranks of the upper middle class.

In India, the National Income Accounts show that the share of food in private-consumption expenditure fell from 41% at the turn of the century to about 29% now.

In China, too, economic development has led to an increase in disposable income. “China will be the most promising retail market in the world,” predicts Richard Ding, chairman of Empire Luxury Brands, Hangzhou and CEO-managing director of Royal Cyprus Group, China. “It has been growing double-digit for many years and will continue to do so for several reasons.”

Ding adds that never before has China relied so much on domestic demand as the top economic driver. At one end of the spectrum, the yuan is expected to appreciate — this upward march forced upon both by the depreciation of the US dollar and the Chinese government’s effort to curb inflation by reducing trade surplus.

At the other end of the spectrum, there are factors such as moderate inflation contributing to the growth of retail business, an upward demand for high-end products and luxuries, and a steadily increasing urbanisation, which produced additional new demand each year. These measures are expected to keep China on its double-digit growth trajectory.

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