Shoppers stand next to an advertisement for a cosmetics company as part of an advertisement in a mall on December 9, 2020 in Beijing, China.
Kevin Frayer | Getty Images
BEIJING – For many people in China, the economic shock of the coronavirus pandemic remains.
China’s gross domestic product is widely expected to grow 2% this year – the only major economy growing in a global recession. So far, this growth has come mainly from more traditional industries like manufacturing rather than from consumer buying. This is a problem for a country of 1.4 billion people, whose livelihood Beijing seeks to support by becoming more dependent on domestic demand.
“What is a little worrying given the economic recovery is still weak demand, particularly in consumption,” said Jianwei Xu, senior economist for Greater China at Natixis, when he called reporters Thursday.
He found that household income increased only slightly compared to the previous year. “We still need time to see a full recovery in consumption,” said Xu.
The average household disposable income in Chinese cities rose 2.8% year over year in the first three quarters of this year. This is evident from official data that can be accessed through Wind Information. In 2019, income increased 7.9%.
Another indication of the pressure on buyers was shown in November consumer price data published last Wednesday. The overall index and the sub-index excluding food prices fell for the first time since 2009.
In particular, the prices for consumer goods fell by 1% compared to the previous year.
The recovery in production is not bad, but demand is still rather weak. The decline in the CPI reflects China’s supply is greater than demand, said Jianguang Shen, chief economist at JD Digits, which was spun off from Chinese e-commerce company JD.com. Shen was previously the chief economist at Mizuho Securities Asia.
Analysts from Bain and Kantar Worldpanel, in their ninth annual study of Chinese shoppers, found that the average retail price of a basket of housewares has fallen this year as consumers sought more value for their money amid increasing uncertainty about future income .
Anecdotally, earlier this year many employers postponed or cut wages for workers as companies struggled to survive in the wake of the coronavirus pandemic.
Urban unemployment remained at a relatively high 5.3% in October after reaching a record high of 6.2% in February, according to official but highly dubious figures.
In the face of these pressures, retail sales fell 5.9% through October, although they were back up on a monthly basis in August.
In addition, the live streaming e-commerce sales phenomenon that began during the pandemic has contributed to the decline in the average retail price as many products are sold through promotions, according to the report by Bain and Kantar Worldpanel. About 7% of total consumer sales in the first three quarters of this year came from live streaming, up from around 4% in the previous year, according to the study.
“Consumption has been slow overall (in China),” Rob Subbaraman, head of global macro research at Nomura, told reporters on Thursday.
“One (reason) is that direct government support for households has not been as strong as, for example, in the US or Europe, where there was much more direct support from a financial perspective,” he said. “In addition, the wealth effects are obviously important, and equity markets in China have not rallied as much as in the US, for example. So this kind of confidence boost from greater wealth and the feeling of having more to spend is not like that.” strong. “
The S&P 500 is up more than 13% this year, while the Shanghai Composite is up more than 9%.
Growth in the real estate market, where most people in China invest their wealth, has also been slow. According to Wind, the year-on-year increase in the price index for residential buildings for 100 cities has remained below 5% in almost every two years. Authorities have tried to limit speculation while China’s overall economic growth slowed and even decreased in the first quarter of 2020 during the height of the pandemic.
Looking ahead to the next year, most economists expect China’s consumption to recover.
“We believe that the recovery in private consumption will be supported by the dissolution of excess savings in 2020 (which is 6% of annual consumption),” said Robin Xing, chief economist at Morgan Stanley in China, and his team in a note Thursday.
They forecast that China’s GDP will grow 9% next year from 2.3% this year, with the labor market fully recovering in the first half of the year.
As early as October, retail sales rose by 4.3% in the run-up to the previous year. The catering segment grew by 0.8% for the first time in 2020 compared to the previous year.