Dec 30, 2008

Lifestyle - China's Consumers: Not Ready to Save the World

Jessie Jiang

By any local standard in the prosperous northeastern coastal city of Tianjin, Gong Haitao, 31, seems to have it all. A production supervisor at a major glass manufacturer, Gong enjoys a steady income, has a decent apartment, a car, and is happily married. But during a recent drive from downtown Tianjin to his suburban home, Gong couldn't stop complaining about life, albeit in a rustic, good-humored way. "If it wasn't for the bad economy, I would have bought a second car and a nicer apartment by now," he says while driving past a grand mixture of construction sites and farms in southern Tianjin. Along for the ride is his wife, Wang Yanfeng, 28, manager of a high-end local beauty salon.

Young middle-class couples like Gong and Wang are key to China's economic future - just as China's future may determine how long the global recession lasts. They are part of the population cohort the government hopes will boost domestic consumption, which takes up a mere 35% of the country's GDP right now, and thereby wean the country away from export-dependent growth. China has long been concerned about its sluggish domestic consumer demand, and has recently vowed to expand it by injecting $586 billion in nationwide infrastructure. But a dwindling confidence in the economy seem to be getting in the way of the government's agenda. Here in the industrial town of Dagang just south of Tianjin, instead of spending more to spur the country's GDP, the Gongs are actually tightening up their wallets for a rainy day. The Chinese have been hardy savers even in the best of times, scoring the highest saving rate among all major countries. Now, more than ever, their money is sitting in banks, unspent. "Call it old-school if you will, but I think putting cash in a bank really is the safest form to keep money right now," says Gong. "And a lot of my colleagues would agree, too." (See pictures of the global financial crisis.)

Gong's increasing wariness of spending and investing comes with good reasons. Throughout this past year, bad investments in ventures and funds have cost the couple a hefty 50,000 yuan (roughly $7,300) - or about one third of their annual income - something inconceivable in the popular mind when the economic outlook was much rosier.

Nevertheless, the Gongs' living standards don't exactly fit into the Chinese definition of frugality. They live in a cozy two-bedroom apartment in downtown Dagang, drive to work everyday in a Kia Cerato that according to Gong, about 70% of the locals still deem a luxury. But they are not carrying a mortgage, which could have easily added another 2,000 yuan (nearly $300) to their monthly expenditures. Gong's parents chipped with their savings to help the young couple purchase their apartment.

Even so, the couple still largely limit their regular spending to necessities like food, clothing and gas, totaling about 4,000 yuan (about $580) a month. That amount is takes up most of Gong's monthly salary. By keeping luxuries down and giving up vacation travel, the couple has managed to save up all of Wang's salary, which normally amounts to about 10,000 yuan ($1,460) a month. "I just like to stay in and watch movies when I'm off from work," says Gong, who describes himself as an indoor person. The farthest trip he's been on in recent years was a one-hour flight to Dalian, a coastal city right across from Tianjin on the Bohai Bay. "Fortunately, [not traveling] saves money, too."

Married for two years, the Gongs say they want to stay childless for another four years, partly because of their financial situation. Like so many other young Chinese couples, having a baby brings additional financial burdens that they are afraid they can't afford. "It's just a possible item in our next five-year plan," says Gong. The next "five-year plan" includes a car and a better health insurance package for his wife, as well as a new apartment in a nicer neighborhood where they can feel secure to walk their dog. But right now, everything is up in the air, because he fears there is a 10% chance of his losing his job because his company is suffering in the worldwide recession. It supplies windows to the globalized auto industry. "If the economy picks up next year, the first thing I'll do is to buy a new car," says a determined Gong. "It's absolutely necessary, and within our capacity. But now we are just waiting for the right time."

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