“Consumer finance plays a more and more important role in the market than five years ago,” Sherri He, Shanghai-based partner at consulting firm A.T. Kearney, said in a phone interview earlier this week. She added that online retailers offering consumer financing have seen an increase in purchases.
The level of credit use is not really beyond that of the U.S. and still in early stages of development, she said. “If the Chinese economy is going to be stable, overall consumption will be no problem.”
However, it may prove to be a vicious cycle. China’s growth is increasingly reliant on consumption. It now contributes to well over two-thirds of annual GDP growth, according to official data. In the last several months, the government raised the amount of income exempt from taxes, while trying to increase enforcement of contributions to social security.
Beijing also tried to boost confidence in the stock market and economy by announcing stimulus, supporting stock purchase plans and trying to improve borrowing conditions for businesses.
It’s not clear yet whether such policy changes can help the Chinese consumer feel more confident about spending in a big way. In the meantime, purchasing trends may point to a greater challenge of income inequality.
“I think what’s most significant in China right now is stratification,” Shen said. “Consumption is increasingly stratified.”
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