Consumer brands in China are finding their rewards aren't quite as advertised. Growth in purchases of a wide range of goods has slowed sharply over the past year, and companies ranging from Samsonite to Apple are reporting disappointing Chinese sales figures. Consumers in the world's second-largest economy will have their day, but the idea they alone can sustain growth looks threadbare. It's not just premium brands that are reporting slowing revenue growth in the People's Republic. Retail sales in almost every category are increasing more slowly than they were a year ago. Growth in cosmetics sales has slowed from 15 per cent to 10 per cent, and knitwear from 18 to 12.5 per cent. Only gold and silver jewellery, which has a speculative appeal, has been gaining momentum, with sales up 42 per cent year-on-year in July. Tiffany says its China sales are "especially strong".
Revenue cannot expand at double-digit rates indefinitely. But growth expectations are important for retailers deciding how much capital to tie up in stocks and new stores. China's banks are reporting a sharp increase in bad loans to the retail sector, suggesting that some operators overestimated demand. Sportswear maker Li Ning was an early warning of what can happen - it stuffed its retailers with unsaleable stock, and was forced to buy heaps of the stuff back to salvage its brand.
For some products like designer bags and spirits, government curbs on gift-buying are a factor. But that's not enough to explain the broad slowdown. More likely, decelerating investment in housing, infrastructure and manufacturing, is dragging on incomes. Disposable per capita income for city-dwellers grew an annual nine per cent in the first two quarters of 2013, according to an official survey by the National Bureau of Statistics - compared with a five-year average of 13 per cent. If investment slows, then, so does consumption. That means China can't rely on consumers to step up and fill the gap if investment levels fall, as eventually they must. It also makes the task of increasing China's share of consumption in GDP from its low level of 35 per cent that bit harder. If China wants consumers to pull their weight, it needs to put more money in their wallets.
