International | Mar 19 2009
By Andrew Nelson
With no University of Michigan or Westpac consumer sentiment Index to go by, it’s always tough to get a handle on what your average Chinese consumer is thinking. Sure, there’s always the official data, but official data from the Chinese and provincial governments is more about the picture that they want to paint rather than a genuine attempt at an accurate portrayal of the economic landscape.
Let’s face it, consumers, not businesses or governments are what ultimately drives economies (even though consumers represent about 37% of China’s GDP, which is about 45% below the figure for more developed economies such as the US). The Chinese government not only knows and appreciates this, but it has made instilling public confidence a top priority. This is because the country’s rulers know sustained growth will need to be carried on the back of private consumption, given exports continue to collapse.
And this is where slide-rule wielding, computer crunching propeller heads at Google are now lending a hand. The internet search company has been cataloguing search terms for the last five years and more and Google’s publicly available “insights” service allows anyone to have a look.
By going to www.google.com/insights/search, you can view the number of Google searches for a particular search term, in a particular country or region over a specified period of time. And while it’s not documented in the LSE curriculum, or outlined in any economics text, you can bet that what people are Googling lends a pretty good indication of what they are thinking about.
So, the more China’s on-line audience – which we can assume would be many of the same people with money, or hopes of having some – searches for information on stuff like houses, white goods, cars and stocks, once could assume the more likely these browsers are on the look out to buy these items. Standard Chartered Bank Head of Research for China, Stephen Green, thinks that with the right search terms, one should be able to track consumer sentiment over time.
And Green has done just that, laying out his eight findings, but with a few warnings. First, he points out that while China’s on-line population now numbers some 300m users, this is still only 23% of the total population. There is also a demographic skew. It is an urban-biased sample given only about 28% of China’s internet users live in the countryside, much less than the 56% share of the official population. At the same time, the on-line population is assumed to be younger and richer than the overall population.
But then again, it’s these Chinese that wield much of the nation’s purchasing power, so in many regards, especially for gauging consumer confidence, it’s this segment of the market that both economists and domestic retailers want to look at. It’s also important to keep in mind that unlike Australia, or the US, where Google reigns as king of search, In China it only holds about a 27% share of search market. Regardless, 27% of 300m is still a pretty big sample.
So let’s jump straight into Green’s eight findings and what they have to tell us about China’s economy:
1. Interest in buying a home is rising, especially in Shanghai. Google data suggest that nationwide interest in buying a property peaked in October, but that it recently approached those peaks again in many places. This, says Green, supports the view that there is fundamental demand out there, but that buyers are waiting for prices to drop further. Meanwhile, interest in buying a home in Shanghai has never been higher, notes Green, while interest in Beijing and Tianjin is also high.
Green cautions, however, that growing on-line interest does not necessarily mean a quick pick-up in spending and it especially does not mean that prices will rise. But at least it suggests that buying a home is still very much on people’s minds and that can’t be a bad thing.
An interesting little nugget from the findings was that your average, on-line Chinese no longer dreams about buying a house in America. The data indicate that while searches for buying a home in the United States were high last year, peaking in September, since January this year there have pretty much been zero searches on the topic.
2. Interest in buying a car has pulled back from its pre-credit crisis highs, but the numbers are still pretty respectable, says Green. Searches for buying a car peaked just before the crash started in July-August 2008. Interest has gone down ever since, but it is still above pre-March 2008 levels. Green notes that passenger car sales have weakened since August 2008 and this pretty much corresponds with the search data. However, there was a slight spike in sales in February, partly thanks to tax cuts on smaller cars, points out Green, but this was not picked up in the search data.
3. Searches for foreign travel peaked at the same time as cars, and since then interest has continued to decline. Needless to say that the peak in travel searches peaked at the same time as overall consumer confidence. Since then, interest has since returned to normal levels, paralleling the drop in international air travel. Green notes he would rather be selling cars in China than package holidays to Europe.
4. Again in tune with the themes of a recession, people are increasingly searching for ways to save money. Cheaper phone bills are a stand out, says Green.
5. This one is not only good for the nation’s manufacturers, but also good news for the countries that export materials to China. Interest in buying a TV or a fridge is on the increase, although interest in air-conditioners is declining. But then it is still winter in China, so who’s looking for an air-conditioner now, especially when times are tough?
On the other hand, interest in Televisions and motorbikes has been building quite steadily since 2008, which paints a pretty positive picture for sales of these big-ticket items. That’s why this read is becoming increasing important and Green wagers that if the internet interest drops, sales will be sure to follow.
6. After a big run-up earlier in the year, interest in stocks has stabilised, but really hasn’t dropped. Green thinks this suggests some stability for stock prices in the months ahead given the internet is a huge source of market commentary and stock information for millions of retail stock pickers. Green notes the bull market which began in 2H06 was preceded by a sharp up tick in searches. Searches peaked during the week of 25 May 2007 and after that, interest collapsed. About 20 weeks later the SSE composite hit its peak, and then collapsed too.
Green speculates that the search activity was indicating more and more people and money coming into the market, which fuelled a speculative bubble. Once search activity peaked, only momentum was carrying the index higher and that momentum lasted for about 20 weeks, then prices fell given there was little to support them. Therefore, the lack of searches since May has shown a lack of support for equities, concludes Green.
This has been the case for shares until the past few weeks. The number of searches on stocks stabilised at the end of August 2008, which came ahead of the big drops of October-November two months later. The number of searches then bounced back up in December and two months later, notes Green, we are having a mild little rally off the newer lows. This leads Green to believe that recent search activity is suggesting some stability at current levels.
7. There is no sign of a pick-up in interest in gold. Searches for gold are not high nor are they showing any signs of improvement, either nationwide or in Shanghai.
8. Last but not least, interest in CNY appreciation is really only evident on China’s east coast, with evidence of some people in Beijing searching for CNY depreciation. A little bit of interest arose briefly in mid-December 2008, but it quickly died.Green isn’t sure why, but thinks it may have gained a bit of relevance as a stated policy aim. Nonetheless, Green thinks that of all the things mentioned, the on-line crowd has the least to say about the state of the Chinese currency.