China’s stock market turmoil will not lead to Chinese households tightening their purse strings, the executive chairman of Zhongmin Baihui Retail Group told CNBC.
“The luxury segment may take a dent, but in general, the impact should be negligible, especially in the fast-moving consumer goods (FMCG) space,” said Lee Swee Keng, a Singaporean who heads the retail company, which runs 12 shopping malls in the southern Chinese province of Fujian.
A rise in stock prices usually boosts the wealth of investors and the improved sense of financial security tends to bump up consumption, commonly defined by economists as the “wealth effect.” This increase in spending theoretically results in higher incomes and profits which in a virtuous cycle eventually supports economic growth. But the tumble in mainland equity markets last month raised fears that the opposite may occur and complicate China’s transition from an economy anchored on exports and investment to one driven by the consumer.
However, Lee, who was speaking to CNBC at the “FutureChina Global Forum 2015” in Singapore, remains bullish on the potential of China’s 1.3 billion consumers and advises market watchers to be patient.
“This country has one of the world’s highest household savings rates, while travellers have gone overseas to spend $164.8 billion last year. The Chinese have great potential to be huge spenders,” he said.
“To unlock this potential, Chinese companies must boost innovation to win over consumers. Private enterprises are feeling the heat from foreign competitors, such as Japan’s [casual-clothing line] Uniqlo, and will eventually invest more into innovation. With better products, domestic consumption will be lifted. But just like any economic transition, this takes time,” he said.