Singles' Day: China's shoppers have lost their nerve

Alibaba and JD.com again declined to publish gross merchandise volume figures for Singles' Day, the second year running, and offered only vague claims that transactions had grown. The annual shopping festival used to be a showcase for the confidence of China's consumers and the growth of domestic spending. This year it was notable mainly for the silence. Chinese shoppers have gone on the defensive.

From showcase to silence

Alibaba created the festival in 2009, turning an informal day for single people into a round-the-clock sales event. For more than a decade it announced ever larger sales totals with countdown clocks and celebrity performances, and the numbers were treated as a barometer of Chinese consumption. The spectacle faded as the government's crackdown on technology companies from late 2020 made ostentatious success politically awkward, and as growth slowed. Keeping the figures quiet for a second year suggests that the numbers are not flattering.

The festival has also been stretched well beyond a single day. Platforms now open presales weeks in advance and spread discounts across a longer period, which makes year-on-year comparisons harder even when companies do publish them. Estimates from outside consultancies exist, but they rest on limited access to the platforms' data. In practice the most reliable signals of Chinese consumption now come from official retail sales and from the companies' quarterly results, both of which arrive later.

Deflation and discounts

Consumer prices fell 0.2 per cent year-on-year in October, back below zero, and the property crisis is wiping out household wealth. Consumers are holding on to their savings and hunting hard for bargains. Discount platforms such as Pinduoduo are taking market share from the older marketplaces, and retailers have been pushed into price wars that crush their margins. Households are starting to expect prices to keep falling.

The price data understate the pressure on sellers. Factory-gate prices have been falling for more than a year, as weak demand at home and abroad leaves producers with spare capacity. Food prices have dropped, led by pork. Core inflation, which strips out food and energy, is barely positive. A shopper who expects goods to be cheaper next month has every reason to wait, and a retailer facing that shopper has little choice but to cut prices first.

Where the wealth went

Housing is the main store of wealth for Chinese households, far more so than in most rich countries, where savings are spread across pensions and financial assets. Property prices have been falling since 2021, when Beijing restricted borrowing by developers, and sales of new homes have slumped. Evergrande has been in default for nearly two years, and Country Garden, once the largest developer by sales, has defaulted on its dollar debt. Many buyers paid in advance for flats that have not been finished.

The effect on spending is direct. A family that feels poorer because its flat has lost value spends less, and one that fears for its job saves more. Households have been paying down mortgages early and adding to bank deposits rather than spending. Youth unemployment reached a record in June, after which the statistics office stopped publishing the figure, which does little for the confidence of the young consumers that Singles' Day once relied on.

Winners in a thrifty market

Pinduoduo has thrived by building its business around low prices, group-buying and cheap goods from farms and factories. Its growth has come at the expense of Alibaba's Tmall and Taobao and of JD.com, which built their brands on quality and reliable delivery. Livestreaming sellers, who pitch discounts in real time, are also gaining. Established brands, both foreign and domestic, face pressure to cut prices or lose volume, and luxury sellers are seeing more caution from middle-class buyers.

The losers include China's trading partners. Weak domestic demand means Chinese producers sell more abroad at lower prices, exporting deflation. That helps foreign consumers and hurts foreign manufacturers competing with Chinese goods, from steel to electric vehicles.

Echoes of Japan

The closest precedent is Japan after its property and stock bubbles burst in 1990. Falling asset prices left households and companies focused on repairing their balance sheets, and by the late 1990s consumer prices were falling. Once deflationary expectations took hold, they proved very difficult to reverse, and Japan spent the next two decades trying. China has more room for policy and faster underlying growth, but the pattern of falling property prices, high saving and weak prices is familiar.

Can Beijing turn it

The counterargument is that the economy is not collapsing and that policy is turning. Growth reached 4.9 per cent year-on-year in the third quarter, and in late October the National People's Congress approved an extra RMB 1 trillion of sovereign bonds, mainly for disaster recovery and infrastructure. The central bank has cut interest rates twice since June, and cities have relaxed rules on buying homes. Consumers may simply be adjusting their habits, not retreating for good.

The problem is that the stimulus is aimed mainly at construction and investment, not at households. Until the property market stops falling or the government puts money directly into consumers' pockets, confidence is unlikely to return. The data to watch are October retail sales, due in the coming days, monthly home sales and price figures, and the consumer-price index for November.

The subdued Singles' Day confirms that falling property prices have badly damaged Chinese consumer confidence. Shopping has become an exercise in thrift, and retailers should expect thin margins until the housing market stabilises, which on current evidence will not happen before the second half of next year.