Written by Patrick Milan, creative destruction officer
The International Monetary Fund (IMF) predicted this week that the growth of China’s economy will drop below 7 percent this year to 6.8 percent as China’s economy is transforming away from exports and manufacturing to a greater focus on consumption and services. The rub is that many U.S. companies are openly concerned that the immediate effect of the transformation will actually dampen consumer spending in China. After all, when economies slow down, jobs are often in jeopardy, consumers can be expected to start holding on to cash and, at the top of the list, discretionary spending usually suffers an immediate drop.
We reached out David Croasdale, the managing director of our communication practice in Hong Kong. David was out shopping in Hong Kong this past weekend and shares that he has no fears about a consumer spending slowdown in China. And as a proof point, David offers up a veritable stampede he witnessed this weekend as people from mainland China overwhelmed a store in Hong Kong selling the Apple iPhone 6S — the king of discretionary spending passion.
“I saw one guy buy 20 Apple iPhone 6s Plus models and pay for them all in cash,” David said. Croasdale reports that the Chinese shopping culture appears to be strong and persistent — even in the wake of the equities market crash and the devaluation of the yuan. And consumers are using cash. “The shop lady (at the mobile phone store) used a banknote machine to count the cash,” David said.
David tells our clients he is not seeing obvious signs of a slowdown in Hong Kong. But we must remind ourselves that all slow downs are relative. China’s slowing economy, at it’s 25-year low, is 6.8 percent. The U.S. economy this year is predicted to top out at 2.6 percent.
We are preparing an update on the business-to-business side of the equation later this week with our practice leader in mainland China, Maggie Chan. More to come.