14
Sep
2015

The perception and reality of China

Much has been written about perception and reality; are they the same; how do they differ and what affect does one have on the other? It is one of those sticky subjects on which most people have their own interpretation, and may never agree upon.

So the recent devaluation of the RMB and subsequent interest rate decrease in China set the media and commentators rushing to give their perception of what appeared to be a major economic issue. For many, and I have to say the many who do not live or work in China, their perception was strongly in the disaster camp, which as a result influenced other commentators and advisors around the globe to see the news as a disaster. And of course, the stock markets generally took a shallow nose-dive for this reason.

For those sitting inside the Chinese firewall, our perception was perhaps closer to the reality than those on the outside. We know that the Chinese government must release its financial statements, that local investors will get worried by the general market concerns and the whole thing becomes a self fulfilling prophesy, particularly when you add in the herd mentality of the Chinese culture; if a few people talk about it enough then many people start to believe it.

To be seen to be doing something and equally to stop the Chinese people worrying about the problem that they now feel is quite large, the government lowered interest rates; now the outside feels more comfortable and the public are more relaxed and less worried about their investments. Things then calm down, however the foreign media are still worried but other news stories are more pressing and China drops to page 4 of the paper and not page 1. The people are now even calmer.

So for the luxury brands, the world they thought they had just gained a handle on not long ago after the consumers decided to change their habits and reduce their spending, started changing again, not only was the RMB devalued but concern amongst consumers about spending money which had been stable for a while, now appeared to go a little mad. What those on the outside of China need to appreciate is that macroeconomics have a big long term influence on the national and global economies but within China there is a microeconomic system running in parallel.

Consumers receive and give money off the books much of the time, their worlds are based around short-term thinking, which completely contradicts their long term ‘save for a rainy day’ philosophy. They may want to save money just in case the future is a little black, but they cannot easily resist buying luxury items to reward themselves or to give themselves face among their peers. Applying western logic to a culture like that in China is very silly because their world is nothing like our own.

So next time you read something about the reduction in Chinese spending overseas or at home, or are warned that your world will end if the Chinese people stop buying bananas, just remember how different your perception and their reality can be and take a breath. It may not be quite as bad as some commentators like to imagine.


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