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Tighter regulation of the housing and tech markets, flooding during the vacation season, and China’s declared “zero tolerance” policy toward the Delta virus slowed the country’s consumer spending to a growth rate of 2.5 percent in August, about $534 billion worth, year on year, compared to July’s 8.5 percent, The Wall Street Journal reported.
The month showed the slowest growth in consumer spending in a year and failed to reach even half of the 6.3 percent predicted by economists the WSJ polled.
The total value of homes sold in China last month dropped by 19.7 percent, compared to a year earlier. The average price of a new home across 70 major Chinese cities nudged 0.16 percent higher, the smallest gain since April 2020.
Investments in Chinese real estate rose 10.9 percent in the year’s first eight months, the National Bureau of Statistics reported, compared to a 12.7 percent pace during the first seven months, also indicating slower growth in August.
Construction starts slipped 3.2 percent from January through August, accelerating from the 0.9 percent decline that marked January through July.
China’s residential real estate sector has been central to the government’s “dual circulation” initiative to strengthen the consumer economy and de-emphasize government-funded infrastructure spending and dependence on exports “Top Trends 2021: The Rise of China,” (19 Jan 2021).
“If the latest [COVID] outbreak could be effectively controlled by the end of September, there will be a tourism rebound during the seven-day National Holidays, but there may not be a sharp bounce,” Wang Jun, chief economist at Zhongyuan Bank, told the state-controlled Global Times newspaper.
The number of guest-house bookings for the upcoming Golden Week and Mid-Autumn Festival holiday have surpassed that of last year, according to online reservations platform Tujia.
China’s current five-year plan emphasizes strengthening consumer spending as part of the country’s “dual circulation” strategy, which seeks to balance exports and government infrastructure spending with stronger domestic consumption.
The plan highlights new-energy vehicle sales in the country and the creation of several cities to be groomed as “international consumption centers” to attract luxury shops and foreign tourists.
The centers will “cultivate more consumption landmarks, optimize the environment for consumption and shopping, and improve supplier quality to unleash the potential of high-end, online, service, external, and nighttime consumption,” according to China’s SHINE news service.
TREND FORECAST: China has targeted a modest 6-percent GDP growth rate this year. Output more than doubled that figure during the first half of the year, to 12.7 percent. While the WSJ noted that tighter credit and strict anti-Delta mandates could hobble the pace for the rest of 2021, minus an equity market meltdown, we disagree. We forecast China’s GDP to rise by at least 7 percent.
Consumer spending aside, China’s economic indicators remain strong. It’s economy grew 9.38 million new jobs during this year through August, reaching 85.3 percent of the government’s 2021 goal. The unemployment rate was unchanged at 5.1 percent.