One of Xi Jinping’s long list of aspirations for his time in office is to eradicate “extreme poverty” in China by 2020. According to Xinhua, over 68 million rural people have been “lifted out of poverty” in the last five years, with a further 10 million due for salvation this year. But a phrase describing a different type of impoverishment has been getting media coverage, with plenty of netizens claiming to be part of a newly-suffering subclass.
They are the “invisible poor”. The term describes younger people who earn more than Rmb10,000 ($1,570) a month, says the Economic Observer, which is a good income for most Chinese. But many in this group are big spenders, the newspaper says. “They wear $500 suits, get regular facials, drink top-class Chilean wine, and insist on living in rental apartments that cost more than half their monthly salary. In brief, this so-called ‘poor’ population owes their poverty to their extravagant lifestyle rather than to low income.”
The label has proved controversial for the state-backed media, with China Youth Daily calling for a distinction between the genuinely impoverished and those who are merely “crying poor”.
Commentary in the People’s Daily chided that many of the invisible poor have significant spending power, much greater than poorer residents of many of China’s cities. “Perhaps they should be the focus of our attention,” it surmised.
China’s growing consumer debt is worthy of note too. According to the National Institution for Finance and Development (NIFD), a Beijing think tank, household debt stood at about half of GDP at the end of 2017, rising by an average 3.5% a year since 2008. The ratio isn’t huge compared to countries like the US (79%) but China’s financial infrastructure is weaker and the debt has accrued more rapidly. In March ‘super regulator’ Guo Shuqing (see WiC403) warned that the run-up in household debt was “very risky”.
Mortgages have been behind much of this increase in borrowing, with many Chinese buying property as an investment. But the concern is that many of the invisible poor are borrowing to consume, rather than invest. Shorter-term consumer credit has been growing at a rate of 35% a year, partially facilitated by online micro-lenders and in the greyer areas of the sector, unregulated loan sharks charge stratospheric interest rates or demand unusual collateral (such as nude photos, see WiC330).
Some commentators lament changes in culture as younger Chinese adopt less frugal living styles than their parents. Others point out that household savings still outweigh household debt, but that consumers seem to be moving deposits out of traditional savings accounts into other wealth management products. “The scale of online money funds has grown rapidly from less than Rmb1 trillion in 2013 to Rmb6.74 trillion by the end of 2017,” Xinhua reports. “At the same time, savings accounts are the only major household financial asset that have seen a decrease over the last five years.”
For instance, younger, tech-savvy consumers find that putting their extra cash into the world’s largest money fund, Ant Financial’s Yu’E Bao, is more convenient than depositing it in a bank account because it keeps their money in the Alibaba-Ant Financial ecosystem.
According to Bloomberg, regulators are mulling new restrictions for Ant and its peers, including new licencing rules from the central bank and minimum capital requirements. And in the meantime the government continues to talk up consumer spending as a means of fuelling the economy. He Lifeng, chairman of the National Development and Reform Commission, estimated in March that it will contribute more than 60% to growth this year. “Everyone knows that the role of consumption in driving the economy forward is becoming more and more important,” Xinhua added. But how much of that is the ‘invisible poor’ running up credit card and other debt must be the concern.
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