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After two years of COVID-related restrictions and lockdowns, China has been unable to persuade its consumers to start buying again.
December’s retail sales gained only 1.7 percent, year on year, the slowest monthly gain since August 2020 and a fraction of the 8 percent growth notched in December 2019.
Disposable income among Chinese households grew 5.4 percent in last year’s final quarter, less than the third quarter’s 6.3 percent and far below the 9.2-percent jump during the same period in 2019, according to the National Bureau of Statistics.
Household savings grew by the equivalent of $855 billion in January, four times more than a year earlier, and new household loans were fewer by half, according to the People’s Bank of China.
The figures indicate that Chinese households have money to spend but choose not to.
Self-Sufficient
As we have noted, igniting domestic consumption is a priority for the Chinese government if the country is to meet its 5-percent growth target this year; with the COVID War winding down, spending in the West is forecast to shift from goods and gadgets, China’s specialty, to travel and services.
That shift could dent China’s export sales, forcing it to turn more sharply to domestic consumption to keep growth on target.
As a result, Chinese parliamentary leaders meeting this month are expected to propose measures such as subsidies for vehicle purchases and vouchers for various forms of spending.
Also, lenders recently eased borrowing conditions, making loans more attractive to businesses and households, the Wall Street Journal reported.
China must enact relief measures for small retailers and “use every possible means to support a recovery of consumption,” commerce minister Wang Wentao said in a 1 March public statement quoted by the WSJ.
Consumer spending is essential to China’s long-range “dual circulation” economic strategy in which manufacturing, especially for exports, and domestic consumption play equal parts.
We have detailed China’s dual circulation policy in articles including “Xi Calls for Chinese Technological Self-Sufficiency” (20 Oct 2021), “China 2021: The Chinese Century” (8 Dec 2020), and “China’s Consumers Boost Spending” (11 May 2021).
Chinese consumers’ stinginess also has impacted Western countries.
Nike’s sales dropped 24 percent, year over year, during the three months ended last November, the company said. Starbucks reported a 14-percent decline in same-store sales over the three months ended 2 January.
However, losses to Western brands may be due to China’s newfound “consumer nationalism” that favors domestic brands over foreign, as we reported in “In China, Domestic Brands Outpace Western Icons” (29 Jun 2021).
TREND FORECAST: China’s dual circulation policy exemplifies our Top 2022 Trend of the move toward self-sufficient economies that depend less on international trade and more on domestic sourcing, manufacture, and spending.
TREND FORECAST: As the Omicron variant fades and no new COVID version takes its place, China’s consumers will resume spending, especially with government stimulus programs that will pump more money into the economy that will help urge them on.
Still Positive
Apparently undamaged by the country’s draconian “zero-tolerance” policy during the Omicron plague, China’s manufacturing purchasing managers index rose a fraction in February, notching 50.2 compared to January’s 50.1.
Ratings over 50 indicate growth; the higher number, the stronger the expansion.
It was the index’s fourth consecutive month showing the sector strengthening.
The sector grew despite shrinking demand, materials shortages, and a weak global economic outlook, which shows China’s Omicron countermeasures were effective and did not damage the economy, according to Yang Jinghao, chief economist at Concat Data Technology.
China’s economic fundamentals remain positive, Yang Yimming, a senior government economist, told a press briefing recently, although the second quarter may show a weakness that will require the government to take steps to ensure continued growth, he said.