Frugal is the new cool for young Chinese as economy falters

BEIJING, Sept 19 (Reuters) – Before the pandemic, Doris Fu envisioned a different future for herself and her family: new car, bigger apartment, fine dining at weekends and vacations on tropical islands.

Instead, the 39-year-old marketing consultant from Shanghai is one of many Chinese people in their 20s and 30s who are cutting spending and saving money where they can, shaken by China’s coronavirus lockdowns, high youth unemployment and a faltering real estate market.

“I don’t have manicures anymore, I don’t get my hair done anymore. I made all my cosmetics in China,” Fu told Reuters.

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This newfound frugality, reinforced by social media influencers promoting low-cost lifestyles and sharing savings tips, is a threat to the world’s second-largest economy, which narrowly avoided contracting in the second quarter. Consumer spending accounts for more than half of China’s GDP.

“We’ve been mapping consumer behavior here for 16 years, and in all that time I’ve seen young consumers the most concerned,” said Benjamin Cavender, executive director of the China Market Research Group (CMR).

China’s “zero-COVID” policy — including strict lockdowns, travel restrictions and mass testing — has weighed heavily on the country’s economy. The government’s crackdown on big tech companies also had an outsized impact on the young workforce.

Unemployment among 16-24 year olds is nearly 19%, according to government data, after hitting a record 20% in July. According to two industry surveys, some young people have seen pay cuts in retail and e-commerce, for example. The average salary in 38 major Chinese cities fell 1% in the first three months of this year, according to data compiled by online recruitment firm Zhilian Zhaopin.

As a result, some young people prefer to save rather than splurge.

“I used to watch two movies a month, but I haven’t gone to a movie theater since the pandemic,” said Fu, an avid movie buff.

Retail sales in China rose just 2.7% year over year in July and rebounded to 5.4% in August, but are still well below pre-pandemic 2019 levels of more than 7%.

According to the latest quarterly survey by the People’s Bank of China (PBOC), China’s central bank, nearly 60% of people tend to save more rather than consume or invest more. Three years ago it was 45%.

Chinese households added a total of 10.8 trillion yuan ($1.54 trillion) in new bank deposits in the first eight months of the year, up from 6.4 trillion yuan in the same period last year.

That’s a problem for China’s economic policymakers, who have long relied on increased consumption to spur growth.

China is the only leading economy to have cut interest rates this year to boost growth. China’s major state-owned banks cut interest rates on personal deposits on September 15, a move designed to discourage savings and stimulate consumption. Continue reading

Addressing people’s rising propensity to save, a PBOC official said in July that willingness to invest and spend will “stabilize and rise” as the pandemic eases.

The PBOC did not respond to Reuters requests for comment; neither does the Chinese Ministry of Commerce.

’10 YUAN DINNER’

After years of increasingly passionate consumerism fueled by rising wages, easy credit and online shopping, a frugal trend in China is bringing young people closer to their more cautious parents, whose memories of lean years before the economy picked up make them more likely to save to have .

“Amidst the difficult job market and severe economic pressure, young people are experiencing a sense of insecurity and uncertainty that they have never experienced,” said Zhiwu Chen, associate professor of finance at Hong Kong University Business School.

Unlike their parents, some show their frugality online.

A woman in her 20s from the eastern city of Hangzhou, who uses the Lajiang Handle, has garnered hundreds of thousands of followers who post more than 100 videos about how to make dinner for 10 yuan ($1.45) on the lifestyle app Xiaohongshu and the streaming site Bilibili makes.

In a one-minute video with nearly 400,000 views, she cooks a dish of 4-yuan basa fillet, 5-yuan frozen shrimp, and 2-yuan vegetables with a pink cutting board and a pink rice cooker.

In Shanghai, one of China’s most expensive cities, discussions have sprung up on social media to share saving tips, such as the “Live on 1,600 yuan a month” challenge.

Yang Jun, who said she had high credit card debt before the pandemic, founded a group called Low Consumption Research Institute on networking site Douban in 2019. The group has attracted more than 150,000 members. Yang said she is cutting back on expenses and selling some of her belongings on second-hand sites to raise money.

“COVID-19 makes people pessimistic,” said the 28-year-old. “You can’t just be like you used to be, spend all the money you make and make it again next month.” She said she is now debt-free.

Yang said she canceled her daily Starbucks coffee. Fu said she switched her makeup powder brand from Givenchy to a Chinese brand called Florasis, which is about 60% cheaper.

French luxury brand leader LVMH (LVMH.PA), which owns Givenchy, and coffee giant Starbucks Corp (SBUX.O) both said sales in China fell sharply in the most recent quarter. Continue reading

China has not signaled when or how it will exit its zero-COVID policy. And while politicians have deployed various measures to boost consumption, from subsidies for car buyers to shopping vouchers, much more money and attention has been poured into infrastructure to stimulate the economy.

Stability has been the key issue for China’s policymakers this year, experts say, as President Xi Jinping prepares for a third term as head of state at next month’s congress of the ruling Communist Party.

“In the past, when there was an economic slowdown, consumers tended to feel that government policy would solve this problem very quickly,” said CMR’s Cavender. “I think the challenge right now is interviewing younger consumers who really don’t know what the future holds.”

Fu, the marketing executive, said she has postponed plans to sell her two small apartments to buy a larger one in a better school district for her son, giving up upgrading from her Volkswagen Golf for now.

“Why don’t I dare to upgrade my house and my car even if I have the money?” She said. “Everything is unknown.”

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Reporting by Albee Zhang and Tony Munroe Editing by Bill Rigby

Our standards: The Thomson Reuters Trust Principles.

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