Top Biz News

Foreign firms bet on larger consumption

By Andrew Moody (China Daily)
Updated: 2010-03-08 09:48

Shoppers leave a Tesco store with their purchases in plastic bags in a trolley. Multinational companies are expecting the Chinese government to work out new stimulus policies to further release Chinese residents' spending power this year. [Cate Gillon/China Foto Press]

NPC deputies set to look at measures to boost domestic spending with one of the world's highest savings ratios

BEIJING: Chinese consumers unnerved by escalating industrial closures in the West are becoming increasingly cautious about spending money, according to one leading foreign multinational company.

The fears of a consumer slowdown were expressed as the National People's Congress (NPC) and Chinese People's Political Consultative Conference meet in Beijing to discuss economic measures, including ones to boost consumption.

Peter Tan, president of Burger King Asia Pacific, one of the world's leading fast food companies, which is planning to open up to 400 outlets in China over the next five years, said global problems could spill over into China.

"In this era of the Internet, world news is available to people in China. They can see what is happening in the car industry and the financial industry and they wonder when some of these cutbacks are going to happen here in China, whether that is likely or not," he said.

As the economic stimulus package is about to be reined back this year, the NPC is set to look at measures to boost consumption in a country with one of the world's highest savings ratios.

According to the National Bureau of Statistics, savings as a proportion of GDP were 51.3 per cent in China in 2008, more than four times the 12 percent level in the US.

Measures to boost consumption could include continued sales tax reductions for people buying cars and expensive consumer goods, particularly in rural areas.

Tan said he welcomed such measures because they were likely to impact also on the fast food sector. "I think they are likely to have a trickle down effect and they would have a positive impact on our industry generally since they are likely to bring people out shopping," he said.

"In the early onset of recession fast food tends to do well since people trade down to eat in quick-service restaurants. The challenge for us is when the downturn gets a little bit more protracted and people don't go to the shopping centers. We rely on impulse purchases when people are out and about."

The NPC is unlikely to bring in panic measures. With the stimulus package in full swing last year, retail sales in China grew by 15.5 percent to 12.53 trillion yuan. The Ministry of Commerce said in January that sales were on target to rise by a further 16 per cent this year.

Wu Changqi, professor of strategic management at the Guanghua School of Management at Peking University, insisted that foreign multinationals were less likely to be as solely focused on China this year as they were in 2009.

"Last year China was seen as something of a safe haven with the US and European markets in the depths of recession. The size of the China economy is still relatively small compared with the US economy and so there will be an inevitable refocusing on Western markets," he said.

Alex Liu, senior research analyst at retail researcher Euromonitor in Shanghai, believes the major foreign food retailers such as Wal-Mart, Tesco and Carrefour will make further inroads into the second and third tier cities.

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