China’s middle class puts luxury spending on hold as uncertainty swirls

As an increasingly uncertain economic environment has them feeling the pinch, China’s middle class is becoming more conservative and cutting back on high-end purchases, according to the results of an annual survey.

Only 28.6 per cent of more than 4,500 people polled listed luxury spending as a financial goal, down more than 50 per cent from five years ago. The survey, published on Tuesday, was jointly conducted by Shanghai Jiao Tong University’s Shanghai Advanced Institute of Finance (SAIF) and asset-management firm Charles Schwab.

The desire to save capital to start a company has also decreased, with 27.8 per cent of respondents listing it as a goal compared with about a third last year. The poll covered people it defined as newly rich, with annual incomes between 125,000 yuan (US$17,132) and 1 million yuan, from first- to third-tier cities across the mainland.

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In comparison, supporting parents and preparing for potential health problems have become higher priorities.

These changes suggest that they “are refocusing on safety and near-term sustainability rather than investing in the future or spending on conspicuous consumption”, the survey report said.

Calling the studied group the “rising affluent”, Tu Guangshao, executive director of SAIF and former vice mayor of Shanghai, said they are a cohort analogous to the middle class in the west, making their behaviour significant in the larger economic picture.

“They’re very important to our economic growth, because no matter which industry they’re in, they are often the backbone,” he said. “They’re also a great driving force of consumption, especially as the government is working to stimulate spending.”

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The results come at a time when higher levels of consumption are being pursued. Despite some upbeat data in August after a spate of support measures, China’s economy is still facing speed bumps on the road to recovery, including low confidence and an ailing property market.

Consequently, more of those polled reported a retreat from investment. Only about 18 per cent said they held stocks – the lowest level since the survey began in 2017 – and more than a third said they had no investment property.

In contrast, cash and fixed-term deposits accounted for about 56 per cent of their portfolios.

The survey also revealed changing attitudes about the concept of wealth itself. After years of Covid-induced lockdowns, respondents have lowered their standards for what constitutes affluency.

While they defined “financially rich” as owning liquid assets of 5.06 million yuan or more in 2021, that amount dropped to 4.23 million yuan this year.

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Lisa Hunt, head of Charles Schwab’s international services, said the same has happened in the US.

“I think that is driven by a little bit of a reality of where we are in both of our economic cycles,” she explained. “The mind shift that all of us made, as we were not travelling as much, spending more time in our homes … we could do more with less.”

Despite this apparent pessimism, she said, China’s newly rich have displayed increased overall confidence in their financial well-being, largely due to a belief in their ability to achieve their goals.

While there is no canonical definition of the middle class in China, a commonly used phrase is “middle-income group”, which the National Bureau of Statistics terms as a three-person household earning between 100,000 and 500,000 yuan a year.