Consumers' faith wavers

Shanghai's consumer confidence fell to its lowest level of the year, slipping close to the line that indicates local residents are pessimistic about the economy, a local university reported Tuesday.

Shanghai University of Finance and Economics' consumer confidence index fell to 100.6 in the third quarter of 2012, down from 104.9 in the second quarter, the university's latest quarterly report said.

The drop shows that consumers' confidence in the economy is shaky, said Xu Guoxiang, the report's chief researcher and director of the university's Applied Statistics Research Center. "The decrease in consumer confidence stems from the global economic recession that started in 2008, which has gradually taken a toll on the domestic economy over the last two years," Xu told the Global Times.

The index has only fallen below the 100 mark, which indicates that the majority of consumers have grown pessimistic, twice since the university began tracking consumer confidence in 2007. The first time was the first quarter of 2009, following the peak of the global financial crisis. The second was the third quarter of 2011.

Xu said that European and American companies have cancelled many orders from Chinese manufactures, causing many of the latter to shut down, dragging on economic growth. "The stagnating global economy has driven down consumer confidence, and when their confidence is low, they tend to save more and spend less," Xu said.

The situation was reflected in a subindex that tracks consumers' willingness to buy, which fell to 74.8 in the third quarter, down from 76.2, according to the report. A subindex that follows demand for homes also fell over the period, slipping to 36.4 from 39.2.

"Most consumers remain reluctant to buy homes because they are waiting for the government policies to bring down housing prices to take effect," Xu said.

Consumers also expected prices to rise within the next six months, according to the report. "One way to cope with the situation and boost consumer confidence is to alter the structure of the domestic economy," said Lu Qianjin, a professor of international finance at Fudan University. "That means changing our model for economic growth to rely less on exports and more on domestic demand."

Lu said it was important for the government to curb inflation and narrow the gap between the rich and the poor. "However, it takes time to see the effects of these kinds of adjustments, so it is difficult to predict when consumer confidence will recover," Lu told the Global Times.