What are the trends for the upcoming year?
First, media inflation will dramatically decelerate due to a weaker economy and sluggish demand. Second, consumer spending – particularly in big ticket segments such as houses and autos — will remain pinched. The government’s efforts to stimulate consumer demand will work but not immediately as the underlying causes precluding the emergence of a vibrant consumer economy, even amongst the middle class, are structural. China requires fundamental land reform, a reliable safety net and a modern regulatory environment. Until this occurs, the Chinese will not open wallets and lower savings rates. Third, gloom and doom aside, the long-term picture remains bright as tens of millions enter the middle class on a yearly basis. This bodes well for service industries such as financial services, travel, education, etc. and offers a huge opportunity for multinational players to establish competitive advantage versus local players who are weak at providing personalized service.
