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.
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).
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".
