Expanding Consumption in 2024
The year 2024 is set to be a year focused on expanding consumption. Early in the year, the Ministry of Commerce emphasized the importance of “promoting sustained expansion of consumption.” Specifically, the strategy has both old and new directions. The old direction builds on the 20-point stimulus package announced by the National Development and Reform Commission on July 31, 2023, aimed at stimulating consumption for the second half of 2023. It includes three main areas:
- Major Consumer Goods: Major consumer goods are either houses costing hundreds of thousands or new energy vehicles priced from around 100,000 to 200,000 yuan. Other consumption data, such as record-breaking New Year’s Day box office figures of 1.533 billion yuan, looks promising. However, compared to the scale of significant consumer spending, a movie ticket is a small, low-cost expense, and entertainment spending barely counts. A house, costing hundreds of thousands, truly defines consumption. The reactivation of the PSL (Pledged Supplementary Lending), the introduction of housing vouchers in Guangzhou, and the renovation of urban villages covering 60% of Shenzhen’s population all aim to strengthen the property market.
- Rural Consumption as the New Battlefield: This echoes the 2008 “Home Appliances to the Countryside” initiative. As an export-oriented economy, China faces a foreign trade downturn, leading to potential production surpluses. How to absorb these excess goods? Rural markets could offer a solution. In this case, rural consumers are encouraged to help drive demand, similar to how appliances were promoted to rural areas in 2008.
- A New Round of Consumption Vouchers: Consumption vouchers will be abundant. While other countries stimulate consumption by directly handing out cash, China often uses news releases or aggressive distribution of vouchers. For instance, Guangdong is issuing 300 million yuan in consumption vouchers from December 2023 to January 2024. Other regions are also issuing vouchers to stimulate the consumption of automobiles, home appliances, and dining.
Senior Consumption and Economic Strategy
What are the new directions for stimulus? The answer lies in one of the wealthiest groups in society: retired seniors. On January 5th, the State Council executive meeting conveyed two significant messages. The first emphasizes the importance of a safety-net approach to address the ageing population. By the end of 2022, data from October 2023 shows that China’s population of those aged 60 and above reached 280 million, making up 19.8% of the total population, or one in five people. Of these, 41.43 million receive senior subsidies, leaving over 230 million without them. Thus, it is crucial to improve the future pension system by utilizing market mechanisms. According to projections from the China Research Center on Aging, by 2030, the elderly care industry will account for 15% of GDP and could reach one-third by 2050. The second message encourages this demographic to spend, given their substantial purchasing power, primarily from significant pensions. However, pension amounts vary greatly. In 2020, Xinhua reported nearly 300 million people collecting pensions, and three years later, this number has certainly surpassed 300 million.
There are significant differences in pension benefits. For instance, rural seniors receive only around 100 yuan per month, which falls under the category of basic old-age insurance for urban and rural residents. The lowest amounts are just over 100 yuan, while the highest can exceed 1,000. In China, there are three types of pensions: basic old-age insurance for urban and rural residents, basic pension insurance for enterprise employees, and basic pension insurance for government and public institutions. The intent appears to be stimulating spending by retirees from government and public institutions, as urban and rural residents typically receive minimal pensions, mostly at a basic level of just over 100 yuan. While enterprise employees’ pensions are somewhat better, they are still far from matching those for government workers. According to official data, the 2023 pension adjustment of 3.8% is already a decrease from 4% in 2022. Historically, however, national pension growth rates have outperformed long-term bank deposit interest rates. While some may argue that pension adjustments are uniform nationwide, the impact varies significantly between 100 yuan and over 10,000 yuan. A 100% increase to 100 yuan only yields just over 200 yuan, while even a 5% increase to a 10,000 yuan pension means an extra 500 yuan each month.
In recent years, various groups have faced certain impacts and influences, yet retirees within institutional systems have remained unaffected. Thus, tapping into the consumption potential of this group is worth considering. Data suggests that by 2035, this demographic will account for 27.8% of total consumer spending. According to the National Working Committee on Aging, by 2030, the market size of China’s elderly care industry is expected to exceed 20 trillion yuan, and by 2050, the consumption potential of the elderly population could reach about 106 trillion yuan, accounting for 33% of China’s GDP. While today’s young people are often frugal, those with substantial pensions have become a prominent presence online, characterized by both wealth and a willingness to spend. The mainstay of the tourism market in recent years has been senior groups. There’s a saying that the best way to choose future in-laws is to join a senior tour group. Retired teachers and doctors are abundant in these groups, possessing generous pensions and comfortable financial situations. They frequently travel, are easy to get along with, and if they realize you are single after joining the group multiple times, they can’t help but introduce potential matches, all of whom generally have favourable qualities.
Market Opportunities with Retirees
Currently, users over the age of 60 on the Ctrip platform number in the tens of millions. On social platforms like Xiaohongshu and Douyin, topics like “sunset tourism” and “senior tour groups” attract significant views. What do retirees with pensions enjoy? From dancing in the square to travelling in groups, many now adore certain streaming platforms, giving rewards to their favorite influencers and content creators. Some have gone further, falling for online scams where they were tricked by fake celebrities and swindled out of their pensions. Given these high pensions, it’s no surprise that scammers are eager to exploit this group.
The year 2024 is destined to be a year of driving consumption. While young people’s wages are stagnating or even declining, and social security contributions increase yearly, those with disposable income are none other than retirees with substantial pensions. Instead of pushing younger people to work harder, it would be more effective to encourage these seniors to spend. After all, retirees from institutional systems have significant purchasing power.
