Bloomberg: Hey China! Just follow India’s example

Bloomberg: Hey China! Just follow India’s example

It’s not a surprise that the big news on the economic front is that China is going through an economic slowdown because it’s moving away from an economy managed by the government to one based on domestic consumption.

However, Bloomberg makes the case it doesn’t have to be painful, if only the Chinese would act like Indian consumers.

India is now the fastest-growing big economy. And it’s consumers are the world’s most confident, according to the Nielsen Global Survey of Consumer Confidence and Spending Intentions. The survey measures consumer confidence, the major concerns and spending intentions of more than 30,000 people in 60 countries.

In the Asia-Pacific region consumer confidence rose in nine out 14 markets in the first quarter this year, up from just 3 rising in the last quarter of 2014. With 100 as the base line for optimism, nine markets, including Indonesia, Philippines, Thailand, Vietnam, China, Hong Kong, came in above 100, India rose one point to 130, to post the highest score for optimism. Ukraine at 41 beat out South Korea’s 46 for least optimistic consumers. Optimism in the US rose one point to 107.

Surging personal wealth sent “unprecedented numbers of Indians to tour the globe, “according to Bloomberg, adding Indians are taking on more credit, to boost their spending power.

“Higher consumption in a retail sector that accounts for about half the economy will help Prime Minister Narendra Modi get companies to invest more and create jobs for a burgeoning population,” said Bloomberg. Many expect people to spend more on the heels of four interest rate cuts and a scheduled pay hike for state employees.

“Consumption will provide a kick-start,” Devendra Kumar Pant, chief economist at New Delhi-based India Ratings and Research, the local unit of Fitch Ratings, told Bloomberg. “This will lead to higher demand that will boost capacity utilization,” and eventually push companies to expand.

Analysts expect more money to flow into Indian hands amid an environment of cheaper oil and falling inflation, In February, the Boston Consulting group said average household incomes should triple to $18,448 through 2020 and that this will double India’s retail sales to $1 trillion

India’s benchmark equity index rallied 27% in dollar terms last year following the election of the most stable government since 1984, said Bloomberg, noting that was one of the top five performances among the more than 90 indexes Bloomberg tracks. Meanwhile Rupee bonds posted the highest return in Asia over the past 12 months, up 11.4%.

Cap Gemini and RBC Wealth Management said the number of rich Indians rose a world-beating 26% in 2014. They also borrow a lot, said Bloomberg, to buy “invitation only” homes in ultra-exclusive gated communities.

It’s all fine that the Indians want to follow the American model and go into hock to buy outrageous homes they can’t afford. Does anyone remember how that worked out? Wasn’t that a big reason for the fiscal crisis of 2008? The Chinese are traditionally a frugal bunch. They typically save their money instead of buying every stupid tchotchke their heart desires. And after the hardships the Chinese have faced this century, holding onto your money might be a prudent strategy.

The Neilsen report said savings are a top priority in every region except Latin America, with Asians saving the most, 61% of their spare cash. Latin Americans’ top priority is paying off debts. Asians also spent 38% of their spare cash on vacations and 34% on new clothes. And 8% had no spare cash.



Categories: Asia Unhedged, Central Asia, China, Hong Kong, India, Koreas, South Asia, Southeast Asia

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