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Yahoo
2 days ago
- Business
- Yahoo
Price wars grip China as deflation deepens, $30 for a luxury Coach bag?
By Liangping Gao and Casey Hall BEIJING/SHANGHAI (Reuters) -Chinese energy sector worker Mandy Li likes to treat herself to a luxury brand handbag once in a while. But since her state-owned employer cut her wage by 10% and the properties her family owns lost half their value, she only buys second-hand ones. "I'm cutting down on large expenditures," said 28-year-old Li, while browsing for items in Beijing's Super Zhuanzhuan second-hand luxury items store that opened in May. "The economy is definitely in a downturn," she said, adding: "My family's wealth has shrunk by a lot" due to the property crisis China has been grappling with since 2021. As deflationary pressures mount in the world's second-largest economy, consumer behaviour is changing in ways that could lead to further downward pressure on prices, raising concerns that deflation could become entrenched, posing more headaches for China's policymakers. Data showed on Monday that consumer prices fell 0.1% in May from a year earlier, with price wars raging in a number of sectors, from autos to e-commerce to coffee amid concerns about oversupply and sluggish household demand. "We still think persistent overcapacity will keep China in deflation both this year and next," Capital Economics said in a research note. New businesses are seeking success by targeting penny-pinchers, from restaurants selling 3 yuan ($0.40) breakfast menus to supermarkets offering flash sales four times a day. But this trend is worrying economists who see price wars as ultimately unsustainable as losing firms may have to close and people may lose their jobs, fuelling further deflation. Consumer price sensitivities' have accelerated growth in the Chinese second-hand luxury market since the pandemic, with annual growth rates surpassing 20% in 2023, according to an industry report by Zhiyan Consulting from last year. But that growth has also led to a spike in the volumes of such items available for sale - which is noticeable in the level of discounts on offer. Some new stores, including Super Zhuanzhuan, are offering items at discounts of up to 90% of their original price, compared with industry standards of 30-40% in recent years. Discounts of 70% or more are also now common on large second-hand platforms, such as Xianyu, Feiyu, Ponhu and Plum. "In the current economic environment we are seeing more existing luxury consumers shifting to the second-hand market," said Lisa Zhang, an expert with Daxue Consulting, a market research and strategy firm focusing on China. But sellers "have more discounts and it's due to more competition." At Super Zhuanzhuan, a green, carryall Christie handbag model by Coach, which its first owner bought for 3,260 yuan ($454) can be re-purchased for 219 yuan ($30). A 2,200 yuan Givenchy G Cube necklace can be found for 187 yuan. "Year-to-year, it's like 20% growth in the number of sellers, but the buyers' numbers are pretty much stable," said the founder of another second-hand luxury business in China, asking for anonymity to speak candidly about the state of the industry. "The middle class - their salary has really decreased. The economy is the number one reason we're seeing these trends." He said big cities such as Shanghai and Beijing have enough buyers to accommodate new market entrants, but elsewhere in China there isn't any room for more. "I would expect the majority of the stores which have recently opened up will actually close," he said. University professor Riley Chang was browsing through Super Zhuanzhuan not because she wanted to buy anything new - she hasn't spent money on big brands since the pandemic - but because she wanted to see what the market was if she sold any of her own possessions. She wasn't happy with what she saw. "I've been to several major second-hand luxury stores in Beijing and Shanghai and they all try to push your price as low as possible," said Chang. ($1 = 7.1833 Chinese yuan renminbi)
Yahoo
06-05-2025
- Business
- Yahoo
Chinese holiday spending inches up but trade war weighs on services
By Casey Hall and Liangping Gao BEIJING (Reuters) -Chinese travellers' spending rose 8% year-on-year during the May Day holiday to 180.27 billion yuan ($24.92 billion), but was still off pre-pandemic levels, while the country's services activity expanded at the slowest pace in seven months in April. The May Day holiday, one of the country's longest, is closely watched as a barometer of Chinese consumer confidence. Consumption in the world's second-largest economy has suffered amid a sputtering economy and prolonged property crisis, while the fallout from the U.S.-China trade war is set to deepen the pain. China's tourism ministry recorded 314 million domestic trips during the holiday, an increase of 6.5%, while the number of transactions using Weixin Pay, a popular payments app, rose by more than 10% year on year, with a notable increase in restaurant spending. But total spending per head over the five-day May holiday period, a typically busy time for family travel, rose just 1.5% to 574.1 yuan, Reuters calculations based on official data showed. It remains below 2019 levels when per capita spending was 603.4 yuan. Cinemas suffered a significant drop in ticket sales, with the box office haul over the five-day holiday at 747 million yuan, only about half of the same period in 2024. GROWTH SLACKENING Meanwhile, China's services sector saw new order growth slacken from March, weighed by uncertainty caused by U.S. tariffs, a private sector survey showed on Tuesday. Despite stronger-than-expected economic growth in the first quarter, supported by government stimulus, China's economy continues to face persistent deflationary risks. The Caixin/S&P Global services purchasing managers' index (PMI), fell to 50.7 from 51.9 in March, its lowest reading since September. The 50-mark separates expansion from contraction. This was broadly in line with China's official survey, which showed services activity easing to 50.1 from 50.3 in the previous month. The Caixin PMI is considered a better read of trends among more export-oriented and smaller firms. The Caixin services survey showed new business growth slowed to its weakest since December 2022, though export orders edged up slightly, partly due to a tourism recovery. The drop in the Caixin PMI provides "further evidence that the trade war is weighing on economic activity in China, even beyond the manufacturing sector," said Zichun Huang, China economist at Capital Economics. "While some caution is clearly warranted, we suspect that firms are overestimating how much damage U.S. tariffs will do," she said. About 48% of employees in China worked in the services industry in 2023 and the sector contributed 56.7% to total GDP last year. But U.S. President Donald Trump's trade actions may hit the manufacturing sector hard and hurt business hiring plans and consumer confidence. Business sentiment in the services sector grew at the slowest pace since February 2020, with companies citing U.S. tariffs as a major concern. Service providers cut jobs for the second straight month to curb costs, leading to a rise in work backlogs, pushing the corresponding gauge into expansionary territory for the first time this year. Firms also reduced prices to attract customers despite higher input costs. ($1 = 7.2354 Chinese yuan) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
24-04-2025
- Business
- Yahoo
Analysis-Tariff-hit China exporters reluctant to heed government calls to sell locally
By Liangping Gao, Ellen Zhang and Casey Hall BEIJING/SHANGHAI (Reuters) -Eno Qian, who runs a clothing factory in eastern China, says she makes a 20 yuan ($2.74) profit for every item she sells abroad and only a tenth of that on domestic sales, making a shift to the local market "not viable" for her tariff-hit business. Beijing has made increasingly louder calls on exporters to find local buyers as an alternative to the U.S. market, now frozen after Washington hiked tariffs on Chinese goods by 145%, but firms are concerned about complications in making the switch. Many export-reliant factories have decried weak domestic demand, price wars, low profits, payment delays and high product return rates in the Chinese market. Qian said she has "decided not to pursue domestic sales," because of thin margins and "cash flow risks" caused by Chinese retailers not paying bills on time, or demanding to return unsold items. "Foreign partners are more stable." These difficulties highlight the world's second-largest economy's over-reliance on exports for growth and the urgent need for measures to boost consumer incomes, analysts say. Without fiscal stimulus that boosts domestic demand, any increase in product supply in the Chinese market may even backfire, by squeezing businesses and intensifying deflationary pressures, they say. "In China, due to furious competition, the margin is very, very thin, or almost sometimes zero, which could cause some exporters to go out of business if they pivot to the domestic market," said He-Ling Shi, economics professor at Monash University in Melbourne. "This will further make the consumption power worse, because if people go out of business, obviously they don't have income to buy in the domestic market." China's commerce ministry said this month that one of its key strategies to mitigate the impact of U.S. President Donald Trump's tariff hikes was to support exporters to sell more domestically. The ministry has since organised "matchmaking" events across China, including in Beijing, Guangzhou and Hainan island, bringing together manufacturers and e-commerce platforms, supermarkets and other retailers to see if deals can be struck. Local governments are forming special task forces to find solutions for the problems raised by exporters, including what officials identified as "unfamiliarity with the domestic market, lack of operational experience, and low brand awareness." CALLS FOR STIMULUS E-commerce giant has said it would launch a 200 billion yuan ($27.35 billion) fund to help exporters sell their products domestically over the next year. It said nearly 3,000 firms have already made enquiries - about 0.4% of Chinese companies engaged in foreign trade. Delivery firm Meituan has also said that it will help exporters with marketing and in other areas. But Qian said what she actually needs is support "in terms of taxes and subsidies." She lost 30% of sales as a result of U.S. tariffs and has had to cut staff. "In the worst-case scenario, we may have to shut down the factory," said Qian. David Lian, who manages an underwear factory in southern China, says the domestic market is "extremely price sensitive, with high promotion costs and frequent returns." Foreign clients place large wholesale orders, while the Chinese market is primarily "retail and small batches," he said. He is looking for new customers in the Middle East, Russia, central Asia and Africa. Liu, who exports lighting products out of a factory in the eastern city of Ningbo and only gave her surname, said she would need to hire a separate team to push domestic sales. "We are a small firm and don't have the energy for that," she said. The Communist Party's elite decision-making body, the Politburo, is expected to meet this month and efforts to support exporters' domestic shift will likely feature in the state media summary of the discussions. Shi, the professor, says this would mainly serve to project strength to the domestic audience and defiance to Washington. Economists are more focused on any concrete demand-side stimulus steps. China's retail sales last year amounted to 43.2 trillion yuan ($5.92 trillion), more than 11 times its exports to the U.S. of 3.7 trillion yuan. Theoretically, a 2 trillion loss in U.S. sales over the next two years could be offset by a 4% rise in consumption over the same period, Capital Economics analyst Julian Evans-Pritchard estimated. But, he said, consumers won't dip into their savings if they don't feel confident about the economic outlook or unless the government commits to more generous social benefits. Alternatively, wages have to rise at a fast pace, which is unlikely given the tariff blow on employers, he said. "Measures tied to the social safety net, particularly pension and fiscal reforms long overdue, are key," said Minxiong Liao, senior economist at Lombard APAC. ($1 = 7.2976 Chinese yuan renminbi) (Writing by Marius Zaharia) Sign in to access your portfolio
