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Black Monday fears recede

News, 31 August 2015

HONG KONG: One week on from "Black Monday", Chinese markets are showing signs of recovery and many analysts are positive about the economy, as consumers haven't stopped spending.

The Shanghai Composite Index was up 4.82% on Friday, following a 5.34% increase the previous day. And Mark Williams, chief Asia economist at Capital Economics, dismissed the overreaction of investors, Xinhua reported.

"The collapse of the equity bubble tells us next to nothing about the state of China's economy," Williams said, adding that relatively few Chinese people had invested in stocks.

It was a view shared by Nicholas Lardy, senior fellow at the Peterson Institute for International Economics, who observed that a focus on weaknesses in China's industrial sector missed the bigger picture of China's overall economic performance.

He pointed out that the service sector has been the biggest driver of China's economic growth for the last three years as households spent on entertainment, travel, health and education.

Consumer confidence may be shaken, however, and brands may need to reconsider their positioning as the devaluation of the yuan has made foreign products more expensive.

"People are still spending but they are more careful about how they spend, with more focus on features and functions, after-sales support and how products fit in their life," according to Ben Cavender, an analyst at China Market Research Group in Shanghai.

The Financial Times cited Samsonite as a case in point: after several years in the doldrums, the suitcase maker shifted its emphasis away from luxury items to more affordable products and posted an annualised 28% increase in sales in the first half of 2015.

"Most consumer companies see that consumers in China are becoming smarter, they want to buy goods with better value," said Ramesh Tainwala, Samsonite's chief executive. "That trend was already starting over the last two years and will only continue."

Businesses will be monitoring their sales carefully in the next few months for any possible consequences of the stock market crash.

"We know that the Chinese consumer changes very quickly," Colin Currie, head of Adidas China, told the Wall Street Journal. "As a brand and a business, we have to watch these changes."

Data sourced from Xinhua, Financial Times, Wall Street Journal; additional content by Warc staff