As increase in cost of living is making people reset their proprieties, the poorer people in China are cutting back on spending, says McKinsey and Company in a survey report released Thursday.

It is in complete contrast with the wealthier Chinese who are more inclined to spend this year, the survey showed as the McKinsey analysts noted an official measure of consumer sentiment in China dropped this year to an all-time low.

According to McKinsey, the more affluent group continues to spend, while lower-income groups are more hesitant and hold spending decisions.

The divergence contrasts with 2019, before the pandemic, when there was little differentiation in spending between the two groups.

Lockdowns and travel restrictions to control Covid outbreaks in China grew more widespread this year as the more contagious Omicron variant entered the country. A property market slump also dragged down the economy.

However, more than a quarter — or 26 percent — of people with an annual household income above 345,000 yuan ($49,286), said they increased spending by 5% or more from last year, the survey found. Only 14 percent of that income group said they significantly cut their spending.

The trend reversed for those with far lower income, below 85,000 yuan a year with only 12 percent said they increased spending, while 27% scaled back.

“The more affluent population is more confident about their personal wealth and future prospects,” McKinsey said in a statement. “They remain relatively more confident about keeping employed in the future and anticipating salary increases in the future. They also typically already have higher savings.”

Across all income categories, the majority — or about 60% — reported no change in spending this year. The share of the wealthiest that said they spent more was also ten percentage points smaller than the 36 percent reported in 2019.

In the months since, national data on retail sales has slumped as Covid controls tightened in major cities such as Beijing and Guangzhou.

The share of urban households wanting to save “for a rainy day” rose to 58 percent — the highest since 2014, the survey found.

On top of reporting higher savings, more than half of the respondents still expected their household income to increase significantly over the next five years. However, the share ticked lower to 54 percent this year from 59 percent in 2019.

In future, McKinsey expects the number of urban households in the lower income category to decline in the next three years, while millions more enter a more affluent group.

The analysts noted a separate survey in August found that China respondents had far stronger expectations about a post-pandemic economic rebound than consumers in the US, UK or South Korea. Only India and Indonesia had a larger share of optimistic consumers than China.

“Higher-income earners are reducing their purchase frequency, or changing their preferences in certain categories, rather than switching to cheaper brands or products,” the analysts said.

“This is facilitated by brands, particularly domestic ones, upping their game and offering more widely differentiated products.”

Meanwhile, Chinese consumers are increasingly turning to local brands and livestreaming platforms.

According to a survey conducted in August, they spent an average of nearly two hours a day watching content on short-video platforms such as Douyin.


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