Chinese Consumers May Be Downgrading their Consumption as Indicated by Increasing Instant Noodle Sales
Wed, January 22, 2020

Chinese Consumers May Be Downgrading their Consumption as Indicated by Increasing Instant Noodle Sales

Chinese consumers are spending less amid Beijing’s trade war with the United States / Photo by glowonconcept via 123rf

 

Financial analysts and economists have noted after the second half of 2019 that Chinese consumers are spending less amid Beijing’s trade war with the United States. The economic growth of China is also at its slowest (6.5 percent) in a decade and consumer spending has slumped. This is according to the Asian Correspondent, citing the data provided by global market intelligence company CEIC.

Recently, the increasing instant noodle sales in China have also reinforced discussion on an economic topic of whether Chinese consumers are spending less because of economic worries. This debate is necessary as the government is relying on consumer spending to support its economy. This means that if these consumers will downgrade their consumption, economic growth may also slow down faster than what the government is expecting.

 

Instant noodle sales in China

The World Instant Noodles Association, established to improve the industry and enhance the people’s diet by increasing consumption and improve the quality of the product, said that the instant noodle sales in Hong Kong and mainland China started to decrease after 2014. This was after cheap takeaway meals were assumed by food delivery businesses. About 38.5 billion servings were recorded in 2016 and then it rose back to over 40 billion servings in 2018. Such accounted for more than 38.8 percent of the total instant noodle sales in the world. 

 

Instant noodle sales in Hong Kong and China started to decrease after 2014 / Photo by Waraphot Wapakphet via 123rf

 

In another report published by the South China Morning Post, it was noted that instant noodle sales in China increased sharply because of the rise in the number of industrial workers and the rapid industrialization in their country. Those in the middle class further used their incomes to purchase high-end food products. 

Credit Suisse Private Banking Asia-Pacific’s managing director Tao Dong said that the hot sales of instant noodles are not really because there were big changes in the product or a change in consumer preferences. Behind all of it is consumption downgrade, he added. Dong stated that although there were improvements in the industry and the product, it still is instant noodles.

 

Instant noodles vs. car sales

Often, sales of instant noodles and cars are compared to determine if Chinese consumers are really upgrading their spending by purchasing expensive items but downgrading their consumption by going for cheaper alternatives and saving more.

 

 

The World Instant Noodles Association also detailed the top five consumers by servings per year. These are as follows:

*China/Hong Kong (2014: 44.4 billion; 2015: 40.4 billion; 2016: 38.5 billion; 2017: 39.0 billion; and 2018: 40.3 billion)

*Indonesia: (2014: 13.4 billion; 2015: 13.2 billion; 2016: 13.0 billion; 2017: 12.6 billion; 2018: 12.5)

*India: (2014: 5.3 billion; 2015: 3.3 billion; 2016: 4.3 billion; 2017:5.4 billion; 2018: 6.1 billion)

*Japan (2014 and 2015: 5.5 billion; 2016 and 2017: 5.7 billion; 2018: 5.8 billion)

*Vietnam (2014: 5.0 billion; 2015:4.8 billion; 2016: 4.9 billion; 2017: 5.1 billion; 2018: 5.2 billion)

SCMP also cited the data of the China Association of Automobile Manufacturers, which noted that the passenger car sales in China declined. Analysts believe the reasons why consumers are more frugal in their spending is that they worry about their jobs, there is a higher debt level, and slow down in the growth of income.

 

Annual food expenditure per person vs. GDP per capita

This was likewise highlighted by the World Bank Data – World Development Indicators. It says that as income rises, the person tends to allocate a smaller share of their total expenditure on food and spend more instead on other goods and services. In China, the food expenditure per person (2015) is US$750 while the GDP per capita is 8,069.21. The GDP per capita is a measure of the country’s economic output, accounting for its number of people. It is derived by dividing the country’s GDP by its total population. The chart also reveals that the average person in Switzerland spent 10 times more on food than the average person in India despite the fact that the average Indian spends three times more on their share of total expenditure.

On the other hand, the United States’ food expenditure per person was recorded at $2,392 and its GDP per capita was 56,443.82. The food price data was made possible with the help of agricultural history expert David Jacks. 

The share of data on annual food expenditure was also associated with an economic theory called Engel’s Law. It states that “as incomes rise, the proportion of consumer expenditures on food falls.”

 

 

Other signs of belt-tightening in China

There are also other signs of belt-tightening in China aside from the increase in instant noodles sales. As observed by Asian Correspondent, it includes cheap booze (liquor), higher sales of pickled veggies, and reliance on bike-sharing and other cheaper transportation. Many Chinese citizens complained that among the many reasons why they are downgrading their consumption is due to a higher cost of living while they have stagnant incomes.

Finance officer Deng said she would sometimes take small loans just to pay her rent. “I would be rich if I didn’t have to pay the rent,” she commented.