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Consumer Confidence Shows Broad-Based Drop in August as Rising Home Prices Weaken Future Expectations

2007-08-29 10:55 1005

SHANGHAI, China, Aug. 29 /Xinhua-PRNewswire/ -- Xinhua Finance eziData China Consumer Confidence Index (CCCI) was updated today, with the survey results showing a broad-based decline in August, as rapidly rising home and general prices weakened future expectations.

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The Xinhua Finance eziData China Consumer Confidence Index fell 1.3 points to 100.7 in August, the lowest level since the survey's baseline reading of 100 in April this year.

Current conditions eased 0.5 point to 99.7 in August, the third consecutive monthly decline. The relatively slight decline in August came as an 11.4-point plunge in sentiment on consumer prices was largely offset by the recent positive performance of the stock market. Sentiment on current personal finance remained unchanged, while sentiment on whether it was a good time to buy higher-cost durable goods like furniture and appliances declined.

Under the support of the Xinhua Finance family, Xinhua Finance eziData China Consumer Confidence Index is produced monthly by eziData, a local provider of China consumer data, and in association with Dr. Richard Curtin. Dr. Curtin is Research Professor and Director of the Consumer Sentiment Surveys at the University of Michigan's Institute of Social Research. The survey this month was conducted through 1,533 telephone interviews from August 2 to August 13. April 2007 survey results are set as the benchmark value of 100. More on the survey methodology can be found in the accompanying section.

Consumers' increasing desire to invest in the rising stock market became more evident in August. The reduction in the tax on bank deposit interest income helped somewhat in curbing consumers' willingness to shift money from savings to investment. However, the August survey showed an increased willingness to reduce spending on daily expenses and shift those funds into stock market investments. This shift was a key reason for the decline in consumers' willingness to purchase durable goods and cars during the month.

Future expectations fell 1.7 points to 101.2 in August, also the lowest level since the initial survey in April. The decline was led by 3.5-point and 3.0-point drops in the one-year and five-year outlooks for business conditions, respectively, due to a continued sharp rise in home prices. Expectations on personal finances remained relatively stable, declining 0.3 point from July, though this was the third fall in as many months.

Among income groups, the drop in overall confidence was most pronounced among those making more than RMB 48,000 per year. Their confidence dropped 1.8 points to 105.1, led by a 2.3-point drop in the future outlook. Sentiment among those earning less than RMB 48,000 per year inched down 0.6 point to 96.1. Sentiment on current conditions showed a similar pattern of decline between the two income groups, while the drop in the future outlook was less significant for those making less than RMB 48,000 per year than for those making more.

The confidence gain among the youngest group of respondents (aged 20-34) seen in July was more than erased by a 1.8-point drop in August due to growing concerns on rising prices and the future outlook for business conditions. The middle-aged (35-54), for similar reasons, showed a 1.3-point decline in confidence in August. Confidence among older consumers (aged 55-64) showed the smallest decline in August, down 0.7 point, as concerns on rising prices eased due to the recent government promise to raise pension levels each of the next three years. The confidence level for each of the three age groups was the lowest level since May.

Regional Trends

Consumer sentiment declined in all regions of China in August, due largely to a deterioration in the future outlook, led by a drop in the southern part of East China.

Sentiment in the northern part of East China, including Beijing, declined 1.3 points to 99.5, led by a 2.4-point drop in future expectations to 98.5, the lowest level in the five-month history of the survey. This was due to a 4.2-point dive in the one-year business outlook and a 7.3-point plunge in five-year business outlook, with both declining for the second month in a row, especially in five-year business outlook, which had fallen a cumulative 12.1 points in the last two months. The declines were due to continued increases in home prices, which consumers worry will impair long term business conditions in the region. The outlook for personal finances in one year improved by 1.8 points, probably due to optimism surrounding the Olympic Games in Beijing next year. Current conditions improved slightly by 0.7 point to reach 101.1, probably due to rising stock market prices.

Sentiment in the central part of East China, including Shanghai, inched down 0.7 point to 99.8 in August, with current conditions remaining unchanged and future expectations falling by 1.1 points after a 0.5-point drop in July. The decline in expectations in August was led by a fall in the business outlook among the higher-income households making more than RMB 48,000 per year.

As the July optimism brought about by the 10th anniversary of the return of Hong Kong faded, consumers in the southern part of East China, including Guangzhou, started to face reality in August, which caused a 2.3-point decline in confidence to 100.8, only a bit over the baseline of 100 in April. Current conditions eased by 1.4 points, led by a fall among younger consumers (aged 20-34). Future outlooks fell by 2.8 points, with sentiment declining in all age groups. The fall was led by a plunge in the one-year personal finance outlook among lower income households, probably due to the change in the government policy to discourage exports of low-value-added products, which will likely have a major impact on the processing industries concentrated in the region's Pearl River Delta.

In contrast, consumers in Middle & West China showed the most optimistic attitude in August, though here, too, sentiment declined. The slight drop in overall confidence by 0.7 point can be interpreted as an adjustment after the sharp 2.9-point jump in July, with the overall confidence level of 102.4 being the highest among the four regions in August. Current conditions eased by 1.0 point while the future outlook inched down 0.5 point to 104.2, still well above the average outlook level of 100.2 in East China. Sentiment on the five-year business outlook eased slightly but remained at 163.7, the highest among the four regions. The catch-up development going on the region, aided by a shift in production from East China in search of lower costs, has contributed significantly to optimism among consumers in this region, especially among the younger generation (aged 20-34).

Trends in Major Cities

Consumers in Beijing were a little more confident in August than in July, while their counterparts in Shanghai and Guangzhou were less optimistic.

Sentiment among Beijing consumers rebounded a slight 0.2 point to 98.0 in August but remained below the levels seen in the four months from April to June. Current conditions rebounded by 3.4 points, ending the decline in the previous two months. The future outlook, however, dropped another 1.5 points after a 5.4-point plunge in July, as sentiment continued to be driven by feelings about the 2008 Olympics. With the stock market rising in August and the Olympics coming closer, consumers in Beijing were more optimistic about the outlook for their personal finances in a year's time, with a clear 7.8-point jump from July. However, the five-year outlook declined again, largely due to growing concerns about post-Olympic economic conditions, the "Post-Olympics Syndrome".

Sentiment among Shanghai consumers dropped for the second month in a row in August, down 1.5 points to 96.7, the lowest level since April as well as the lowest among the major cities. The slight 0.2-point improvement in current conditions did little to offset the 2.4-point drop in the future outlook. The drop in expectations was led by a 6.2-point plunge in the one-year business outlook and a 5.8-point drop in the five-year outlook, the latter showing a cumulative 10-point fall in the last two months. Shanghai consumers expressed increasing concerns that the continued surge in housing prices seen in August might undermine the economic potential of the area.

In Guangzhou, consumer confidence eased 2.2 points to 100.7 but remained above the level of 98.9 in June. Sentiment on current conditions inched down 0.7 point, while the future outlook fell by 3.1 points.

Apr. May Jun. Jul. Aug.

2007 2007 2007 2007 2007

INDEX OF CONSUMER SENTIMENT

ALL CHINA 100 102.2 101.6 102.0 100.7

EAST CHINA 99.8 102 102.1 101.5 100.2

EAST CHINA: NORTH 100.2 101.1 102.1 100.8 99.5

EAST CHINA: CENTRAL 100 101.5 102.1 100.5 99.8

EAST CHINA: SOUTH 99.4 103.2 102 103.1 100.8

MIDDLE & WEST CHINA 100.6 102.8 100.2 103.1 102.4

INDEX OF CONSUMER SENTIMENT WITHIN INCOME SUBGROUPS (ANNUAL HOUSEHOLD)

Under RMB 48,000 95.5 97.1 95.8 96.7 96.1

Over RMB 48,000 105.2 106 106.4 106.9 105.1

INDEX OF CONSUMER SENTIMENT WITHIN AGE SUBGROUPS

20-34 104.2 105.9 105.9 107.0 105.2

35-54 96.4 99.2 98.3 98.1 96.8

55-64 95.8 97.7 95.5 95.7 95.0

COMPONENTS OF THE INDEX OF CONSUMER SENTIMENT

Current Index 100 103.1 101.4 100.2 100.7

Expectations Index 100 101.7 101.6 102.9 99.7

Personal Finance: Current 123.8 129.2 126.8 122.2 101.2

Personal Finance: Expected 128.9 131.9 130.4 129.1 122.2

Business Condition: 1 Year 135.1 134.8 134.7 137.8 128.8

Business Condition: 5 Years 149 153.4 154.6 158.1 134.3

Durable Buying Conditions 103.4 105.1 103.4 105.5 155.0

104.3

INDEX OF SECTORS

Index of Stock Investment 100 99.8 100.1 101.0 105.9

Index of Real Estate 100 97.8 99.9 100.1 98.5

Index of Car Purchase 100 104.1 100.3 98.5 95.4

Selected Consumer Voices:

-- Prices are rising so fast. I went to the wet market trying to buy

something. But eggs cost more than three yuan (per 500 g) and pork cost

thirteen (per 500 g). I couldn't afford that. So I just went home.

-- Home prices are rising every day. I would predict a more than 10% rise

in the latter half of the year. The more the government controls, the

higher prices go.

-- I'd choose to invest nowadays. I'd keep investing with the money I make.

Saving doesn't make sense.

-- Cars are still too expensive in China, plus transportation conditions

are bad. In Beijing you go out and see traffic jams everywhere. You are

better off taking a bus than driving your own car.

For more information about Xinhua Finance eziData China Consumer Confidence Index or to subscribe to the full survey report, please contact us via info@eziData.com.

Methodology

Xinhua Finance eziData China Consumer Confidence Index is produced in association with Dr. Richard Curtin, Research Professor and Director of the Consumer Sentiment Surveys at the Institute of Social Research, University of Michigan. The index is based on a monthly survey of around 1,500 Chinese households via stratified random sampling in 50 representative cities across East, Middle and West China using the same methodology as is used by the University of Michigan. All data is collected via computer assisted telephone interviewing (CATI). Index of April 2007 survey is set as the benchmark (100).

Notes to editors:

About Xinhua Finance Limited

Xinhua Finance Limited ("XFL") is China's premier financial information and media service provider and is listed on the Mothers Board of the Tokyo Stock Exchange (symbol: 9399) (OTC ADRs: XHFNY). Bridging China's financial markets and the world, Xinhua Finance's proprietary content platform, comprising Indices, Ratings, Financial News, and Investor Relations, serves financial institutions, corporations and re-distributors worldwide. Through its subsidiary Xinhua Finance Media Limited (NASDAQ: XFML), XFL leverages its content across multiple distribution channels in China including television, radio, newspaper, magazine and outdoor media. Founded in November 1999, XFL is headquartered in Shanghai, with offices and news bureaus spanning 11 countries worldwide.

For more information, please visit http://www.xinhuafinance.com .

About eziData

eziData is a local provider of China consumer data, serving both financial and consumer market participants. It aims to serve global and local business professionals with decision-making tools that relate to consumption in China and conform to international standards. eziData's comprehensive portfolio of high-quality consumer data products, which includes a structured real-time databank, delivers a broader and more insightful view of the market. For more information, please visit http://www.eziData.com .

Source: Xinhua Finance Limited
Keywords: Real Estate
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