Samsung fears shrinking China demand

Models hold the new Samsung Galaxy Nexus Android phone during its official launch in Hong Kong on October 19, 2011.

Story highlights

  • Samsung has admitted to concerns over "worrying" weakness in Chinese consumer spending
  • A Chinese slowdown would have grave implications for a global economy hit by EU woes

Samsung has admitted to concerns over "worrying" weakness in Chinese consumer spending as customer sentiment, damped by government austerity measures, turns against spending on technology products.

Kim Young-ha, chief executive of Samsung Electronics China, said the overall market for technology goods in China will probably grow by only about 7 per cent this year, down from 10 per cent in 2011. He pointed to disappointing sales of televisions during the "Golden Week" holiday at the beginning of May -- traditionally a strong sales period -- as evidence of lacklustre demand.

A Chinese slowdown would have grave implications for a global economy already hit by the eurozone crisis.

The comments highlight anxiety about one of the key growth engines in the world's second-biggest economy: consumer demand. "It is a concern. The situation is not ideal," said Mr Kim.

His comments come amid signs of slowing growth in China, home to the world's biggest internet, smartphone and flat-panel TV markets. It has been seeking to reorient its economy towards domestic consumption, but a survey of consumer confidence published by Nielsen last week indicated cooling towards discretionary spending. Official statistics show that retail sales growth slowed to 14.1 per cent in April, the lowest in more than a year.

Mr Kim is well placed to assess the strength of Chinese consumer spending because of the broad array of electronic goods sold by the world's biggest technology company by sales.

The end of stimulus measures that Beijing introduced to counter the global financial crisis, including rebates to encourage rural purchases of appliances and electronics, has led to weaker demand, "but a bigger impact comes from lowered consumer sentiment. The Chinese government has been implementing austerity measures targeted at the real estate market and that has had an impact [on spending]," he said.

    China is Samsung's third biggest market after Europe and the US -- accounting for $9.6bn, or 9 per cent, of brand revenues last year -- and a big battleground in its contest with Apple . Despite weaker consumer spending this year, Mr Kim said he was confident Samsung would still achieve 30 to 40 per cent revenue growth there.

    Analysts say Samsung's growth targets are aggressive, but achievable. There is still "no other [big] market that is growing faster than China," Chin Sung-hye, analyst at Hyundai Securities, said.