China Consumer Confidence Index Demonstrated Three Stages of Declines in 2007; 2008...

China Consumer Confidence Index Demonstrated Three Stages of Declines in 2007;
2008 Confidence Expected to Show Large Volatility

SHANGHAI, China, Jan. 22 /Xinhua-PRNewswire/ -- Xinhua Finance eziData
China Consumer Confidence Index (CCCI) released its 2007 annual report, with
the review data showing that Chinese consumer confidence demonstrated three
stages of declines in 2007, with overall confidence declining from the
baseline of 100 in April to the 97.8 in December. The report also expected
large volatility in consumer confidence in 2008.
Since its launch in April 2007, the development of the Xinhua Finance
eziData China Consumer Confidence Index over the period of April through
December can be divided into three stages. The months of May through July saw
a stagnant market in the high range; into the months of August through October
the market hovered in the mid-range; and the final months of November and
December witnessed big drops. The volatility of the Index resulted directly
from the complex interactions of many factors influencing consumer confidence.
Of these factors, the most important ones undoubtedly were the trio: the
prices, stock market, and housing prices.
General Trends of China Consumer Confidence in 2007:
http://www.xinhuafinance.com/uploadedimages/ccci/200801/ccci0801_en1.jpg

Review of the Consumer Current Conditions
For the year the Consumer Current conditions Confidence Index reached a
new height in May and then started declining, hitting the bottom for the
second stage. The index then rebounded somewhat in September and October, only
to see significant decreases again in November and December. The decreases
reflected the adverse impact of fluctuating prices and a volatile stock
market.
1. Prices: One thing remarkable about China' macroeconomic development in
2007 had been its rising prices. The prevalent price increases of consumer
goods apparently have adversely impacted consumers' normal spending habit as
more daily expenditures are being squeezed out of family earnings. Consumers
began to notice the weakening purchasing power of their money on hand.
Naturally they felt that their current conditions were on a decline. In
retrospect, China's CPI took a marked increase since May, led by rising prices
for pork and other food items, and reached a peak for the second stage at 6.5
in August. This inversely mirrored the continuous decline in the Current
Index.
Prices dropped slightly after August while the Current Index inched up
somewhat. But then CPI reached another new height. The rebound of the current
index became short-lived.
2. Stock Market: During 2007, as consumers' investment enthusiasm steadily
grew, the impact of the stock market's volatility to consumer confidence
became ever more significant. As stock market indices climbed up, consumers'
book income from their stock market investment increased. So would the
Consumers Sentiment Index. For example, before May 30, 2007, the stock markets
were persistently bullish, contributing to higher investment income for
consumers. Therefore one witnessed a marked climb of the Current Index in May
over April. Heading into August and September the stock market indices once
again climbed up significantly, contributing to the improvement of the Current
Index. But because of the "the-stock-gains-more-than-you-do" phenomenon
associated with the current bull market, the span of the stock market index
movement lagged behind that in April and May. With the nose-dive of the stock
markets in November, Consumers Current Index took a tumble. The continued
decline of the Current Index in December in a way reflected the inter-play of
persistent high prices and a depressed stock market.
Review of the Consumer Future Expectations Index
During the first half of 2007 the Consumer Future Expectation Index had
been on a steady increase, only to turn south after July. The Consumer Future
Expectation Index's gain in the first half of 2007 was attributed principally
to the persistently rising housing prices. Nationwide, when real estate prices
began to rise at the beginning of the year, many consumers would view this as
a good investment opportunity. Accordingly the Consumer Expectation Index
tracked closely the earnings expectation of real estate investment. In this
case the Expectation Index would follow the earnings expectation and rise.
When the real estate price increases surpassed the buying capacity of the
general market, consumers' view on real estate investment suffered. They would
lower their earnings expectation on real estate investment. At the same time,
consumers were concerned that an over-priced real estate market would severely
affect the potential of the local macroeconomic development in the mid- to
long-term. The inter-play of the above two factors contributed to the decline
of the Future Expectation Index since July.
It should be pointed out that the above analysis covered general trend of
the national Expectation Index only. Notwithstanding the rising housing cost
nationwide, the Expectation indices for the different parts of the nation vary
greatly as a result of differing degrees of socio-economic development levels.
Moreover, other factors such as the "Olympic expectation" and the nation's
export tax rebate policy adjustment would also affect the Expectation Index,
though the impact differs greatly in different parts of the nation. We will
offer more insight in the ensuing sections.
Regional Differences on the Consumer Sentiment Index
China's Consumer Sentiment Indices as well as their development trends
exhibited pronounced regional differences. By and large, the regional
differences for the Current Conditions Indices were relatively minor. But the
Expectation Indices for East China were lower than those of the Middle and
West China, and Tier 1 cities' Expectation Indices were lower than Tier 2 and
Tier 3 cities. Why such regional differences? Such differences arose from
these regions' different economic development stages and the consumers'
different spending habits. Simply put, the confidence of consumers up north is
more volatile. These consumers are more sensitive to changes in government
policies, whereas their counter-part down south showed less confidence
volatility and are usually more practical. The regional differences of the
Expectation Index between East and West China, on the other hand, reflect the
wide gap in economic development.
Trends in Consumer Confidence in All Regions of China:
http://www.xinhuafinance.com/uploadedimages/ccci/200801/ccci0801_en2.jpg
Specifically, a series of long term and short term factors such as the
'Olympic Expectation', the Bohai Bay Economic Ring and the rapid increase in
housing prices, contributed to the Consumers Sentiment Index's fluctuating
range to be considerably higher in the northern part of East China than in the
rest of China. The Current Conditions Index for the central part of East China
mirrored the rest of China closely, but the Expectation Index showed large
variance. This resulted because housing prices in the region were already very
high to begin with. Then after June housing prices saw some rapid increases,
greatly dampening consumers' Expectation Index. Going into December the
Expectation Index dropped to an all-China low. The Expectation Index for the
southern part of east China followed a similar pattern, but for a different
reason: From July and onward China announced plans to revamp the nation's
compensation trade/export policy. This policy overhaul adversely affected a
large number of low value-added, low technology and export-oriented plants in
the Pearl River Delta area. In addition, a series of negative factors such as
the appreciation of the RMB currency and the large housing price increases led
to the rapid decline in the region's Consumers Sentiment Index.
As for the Middle and West China region, its relatively lower housing
prices compared favorably to the high prices in East China, helping the
Expectation Index to rise up with the rising housing prices. The local
consumers' average purchasing power is below East China. After July, rising
prices and over-priced real estate worked hand-in-hand to help bring down the
Expectation Index. The Current Conditions Index was considerably lower than
East China thanks to a rising CPI.
Outlook on Chinese Consumer Confidence Index in 2008
China's economic development continues its forward momentum by leaps and
bounds. Against this backdrop, any attempt to forecast Chinese consumer's
confidence index is a shaky business, especially when we have only eight
months' data to work with. Nevertheless, we will venture to make some general
observations on the consumer sentiment in the New Year.
First let us look at the Sentiment Index on Current Conditions. As
discussed before, consumers' Sentiment Index on Current Conditions in 2007
were mainly influenced by prices and stock market movement. We believe these
factors will continue to play out in full forces on the Sentiment Index on
Current Conditions. During mid-year the stock market is expected to gain new
grounds on the Olympic Concept play. Price increases reached high plateau
during the second half of 2007. This trend is expected to be on the hold
pattern into the first half of 2008. Accordingly the Sentiment Index on
Current Conditions may climb up modestly during the first quarter of 2008,
inch up through fluctuations in the second quarter and reach new height right
before the Olympic Games. But during the second half of the year the market is
likely to see some shakeouts and the price increases (at least the CPI index)
will come down. The interplay of the two forces will likely result in large
volatility for the Sentiment Index on Current Conditions, and downward
movement of the index.
Compared to the Index on Current Conditions, the Expectation Index is more
difficult to forecast. Of the three components of the Expectation Index, the
One-Year Outlook for Personal Finances Index may ride with the stock market to
reach new height mid-year; the Expectation for Future Business Conditions
Index, in anticipation of the Olympic Games, may experience a volatile decline
as the Games approaches and finishes, stabilizing at year end; the Five-Year
Business Outlook Index is the most difficult to ascertain. Because of the
government's clear macroeconomic policies in force, the outlook will to a
large extent depend on the interplay of the government policies and the real
estate market development. If the government's macroeconomic measures succeed
in reining in over-heated elements of the economy and the housing prices, then
the Five-Year Outlook Index can be expected to sustain the current level.
Otherwise, it will inch downward through volatile movements. Incorporating the
above three components, we opine that the Expectation Index will experience
volatile movements throughout the year. At present we do not have a crystal
ball on which direction the Expectation Index will move.
Zoom: Review and Outlook on China Consumer Stock Investment Sentiment
Index
2007 Stock Investment Sentiment Review
During 2007, the volatility of the stock market became one of the most
discussed topics among the general public. Although the Shanghai Stock
Composite posted around 100% gain on market value, individual investors fared
much less. The May 30 stock market tumble and the mid-term corrections since
November had shrunk investors' earnings considerably. Respondents' Sentiment
on Investment Returns once reached 116.3 in May 2007, but posted steady drops
over the next two months following the stock market' roller-coaster rides. The
Sentiment Index regained some momentum over the period of August-October,
riding with the rebound of the stock market and reaching its highest point of
121.8 in October. Following a big drop in November, though, Consumers
Sentiment on Investment Returns regained some ground and registered 109.7. In
December investors reported an annual investment returns at 15% on average, a
figure that paled in comparison to the robust growth of the stock market as a
whole. This phenomenon renders some truth to the notion "the stock index gains
more than you do."
Stock Investment Sentiment & Stock Market Trend:
http://www.xinhuafinance.com/uploadedimages/ccci/200801/ccci0801_en3.jpg
Reflecting investors' judgment on the future direction of the stock market
in the coming one year, the Expectation Index of Stock Investment Sentiment
serves as an excellent forecasting tool. We discovered that the movement of
the Expectation Index of Stock Investment Sentiment led the overall market
index by 0.5~1.5 months. For example, the May Expectation Index of Stock
Investment Sentiment dropped considerably relative to the April Index, against
the backdrop of a very bullish market then. Then came the May 30 stock market
free fall. On the other hand, reacting to the mid-term corrections at year
end,
the Expectation Index of Stock Investment Sentiment went the opposite
direction of the stock composite index as early as September. Notwithstanding
the new heights of the stock composite index, the Expectation Index of Stock
Investment Sentiment hovered around the August level. This suggested that
consumers disagreed with the inflated stock market index and viewed the August
stock composite index as an acceptable range. The ultimate decline of the
stock market index in early November validated the trend of the Expectation
Index of Stock Investment Sentiment. And this time around the drop of the
stock market composite index did not fall below 4800, roughly the level of the
stock market composite index in August.
Outlook for Stock Investment in 2008
2007 was truly a year of enlightenment on investment for the Chinese
consumers. The CCP's 17th Party Congress Report stipulated that "(the
government) must create conditions to allow more citizens to derive income
from investment," paving the way for a promising future for the Chinese
investment market. Nonetheless, at present viable investment channels are
limited in China. Only stock and real estate investments are available. So as
long as excess liquidity is abundantly available, the monetization of asset
will have no other choices but to choose the stock and real estate investment
vehicles. Therefore China's economic growth engine will provide a platform to
allow both the stock and real estate markets to continue thriving. As for the
stock market, respondents' Expectation Index of Stock Investment Sentiment
over the August-December period had been stable at around 115, indicating that
after the onset of the bull market, investors remained optimistic about
investment opportunities in 2008. The stock market composite index is expected
to start from around 5000 and resume its upward journey.
But the optimistic outlook for 2008 does not assure a smooth sailing. What
happened in 2007, albeit stock market crashes, or even the "the stock index
gains more than you do" phenomenon, may recur in 2008. In our view, there will
be three drivers influencing the course of the Chinese stock market in 2008:
the government's macroeconomic policies, U.S. dollar depreciation/RMB exchange
rate, and the Olympic Games. The first two drivers are inter-related and will
influence the fundamental direction of the stock market. If the U.S. dollar
hits the bottom and rebounds, attracting capital to leave China, the
government may implement more stringent macroeconomic policies that could
wreck havoc with the market support, resulting in stock market corrections.
The Olympic Games, on the hand, may change investors' stock investment
sentiment, causing volatile stock market movements. Specifically, before the
Games open, the stock composite index may reach a peak this year. Around the
months of April and August, the stock market may see large movements in
response to annual reports or the Olympic Games pronouncements. Moreover,
individual investors will encounter more difficulties making money in the
stock market in 2008. Having said that, we believe China's economic
development is still on a high growth mode. Even if the stock market may
experience shakeouts, it does not foretell the end of the bull market. Any
talk of the end point of the bull market is simply premature.
Methodology
Xinhua Finance eziData China Consumer Confidence Index is produced in
association with Dr. Richard Curtin, Research Professor and Director of the
Consumer Sentiment Surveys at the Institute of Social Research, University of
Michigan. The index is based on a monthly survey of around 1,500 Chinese
households via stratified random sampling in 50 representative cities across
East, Middle and West China using the same methodology as is used by the
University of Michigan. All data is collected via computer assisted telephone
interviewing (CATI). Index of April 2007 survey is set as the benchmark (100).
The 2007 annual report was based on a total sample size of 13,846 respondents
surveyed in April through December.
Notes to editors:
About Xinhua Finance Limited
Xinhua Finance Limited ("XFL") is China's premier financial information
and media service provider and is listed on the Mothers Board of the Tokyo
Stock Exchange (symbol: 9399) (OTC ADRs: XHFNY). Bridging China's financial
markets and the world, Xinhua Finance's proprietary content platform,
comprising Indices, Ratings, Financial News, and Investor Relations, serves
financial institutions, corporations and re-distributors worldwide. Through
its subsidiary Xinhua Finance Media Limited (Nasdaq: XFML), XFL leverages its
content across multiple distribution channels in China including television,
radio, newspaper, magazine and outdoor media. Founded in November 1999, XFL is
headquartered in Shanghai, with offices and news bureaus spanning 11 countries
worldwide.
For more information, please visit http://www.xinhuafinance.com .
About eziData
eziData is a local provider of China consumer data, serving both financial
and consumer market participants. It aims to serve global and local business
professionals with decision-making tools that relate to consumption in China
and conform to international standards. eziData's comprehensive portfolio of
high-quality consumer data products, which includes a structured real-time
databank, delivers a broader and more insightful view of the market. For more
information, please visit http://www.eziData.com .
For more information, please contact:

Xinhua Finance
China:
Ms. Joy Tsang
Tel: +86-21-6113-5999 or +86-136-2179-1577
Email: joy.tsang@xinhuafinance.com

Mr. Scott Zhang
Tel: +86-21-6113-5996
Email: scott.zhang@xinhuafinance.com

SOURCE Xinhua Finance Limited; eziData

China - Ms Joy Tsang, +86-21-6113-5999, or +86-136-2179-1577, or
joy.tsang@xinhuafinance.com; or Mr. Scott Zhang, +86-21-6113-5996, or
scott.zhang@xinhuafinance.com, both of Xinhua Finance