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A near-empty mall in Beijing, prior to Lunar New Year 2019. In sectors from retail to automobiles, spending growth is beginning to flag.   © AP
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Shop till you stop: Chinese consumers spend less as debt piles up

Tougher times seen for car, construction and some retail companies

TOKYO -- Lunar New Year in China is the time for travel -- traditionally, to visit family -- and for big spending, so it has become a closely watched barometer for the health of the Chinese economy. With China's growth slowing and its consumers tightening their purse strings, this year's celebration has been given particular scrutiny.

The Year of the Pig appears to be off to a slower start, and some companies are lowering their expectations for the rest of the year. Spending on retail goods and dining out during the seven-day holiday break reached 1.005 trillion yuan ($149 billion), exceeding 1 trillion for the first time, according to the Chinese Ministry of Commerce. But the 8.5% year-over-year growth was the lowest since 2005, when the statistics began to be compiled in the current form.

The ministry stressed that people are "attaching more importance on quality," instead of chasing quantity. Top Chinese executives have echoed this line from the government, which has bristled at the "consumption downgrade" narrative that began to take hold last year.

Daniel Zhang Yong, CEO of Alibaba Group Holding, implicitly challenged this notion on a Jan. 30 conference call, saying that consumption remains vibrant as "Chinese consumers continue to upgrade their lifestyle."

Masahiko Uotani, president and CEO of Shiseido, which sold $1.7 billion worth of cosmetics in China last year, also emphasized this point. "We are not feeling a slowdown at all." The Japanese company's China sales grew by over 20% in January; especially its premium products, which saw 40% revenue growth.

Other industries are telling a different story, however.

"Despite stimulus measures to boost the consumption of autos and electronic home appliances, we believe household consumption will likely be sluggish, given the quick buildup of household debt, the lackluster income growth outlook amid the economic slowdown and the cooling property sector," wrote Ting Lu, Nomura's chief China economist, after the official Lunar New Year statistics were announced by the government.

The auto market has been particularly hard-hit.

As new auto sales -- a major engine for domestic consumption -- saw their first annual drop since 1990, Chongqing Changan Automobile, a state-owned car manufacturer partnering with global brands like Ford Motor and Suzuki, said its net profit for 2018 is expected to drop by about 90% on the year.

General Motors, which competes with top brands such as Volkswagen in China, saw its fourth quarter income in the country drop by 39% to $307 million. "We expect China equity income to be down moderately year-over-year," said Vice President and Chief Financial Officer Dhivya Suryadevara on Feb. 6. "In addition, we will have lower volumes in China, given continued industry pressure, while staying disciplined by reducing our inventory levels."

For global automakers, this is like catching the "Chinese flu," said Tom Miller, senior Asia analyst at Gavekal Research. The slowdown in China also means they "can no longer rely on Chinese growth to cushion weak demand elsewhere."

The ailing property market appears to have had ripple effects on other industries too, including construction. Komatsu, the construction machinery heavyweight, is facing "uncertainty" in China, said Takuya Imayoshi, executive officer at the company.

"Stimulus measures have been implemented, but we have not noticed an increase in construction activities. I really have to see how things would unfold after the Lunar New Year break."

Even Alibaba's Zhang conceded that "due to cooling off of the real estate market, large ticket categories, like white appliances, have experienced slower growth."

If there was a highlight to the Lunar New Year holiday, it may have been for retailers and restaurateurs outside of China. The public holiday saw 6.3 million people -- 12.5% more than last year -- travel abroad.

Additional reporting by Nikkei staff writer Coco Liu in Hong Kong.

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