According to Jian Chang, chief economist for China at Barclays Asia Pacific, consumer spending in China has largely lagged the country’s macroeconomic recovery from the pandemic, and that sluggishness is due to slower household income growth.
The data released on Wednesday showed that China’s retail sales again fell short of analysts’ expectations. Official data reported that retail sales were up 12.4% year over year in May, less than the 13.6% increase forecast by analysts.
Barclays economists said in a release Wednesday that they do not see any growth in China’s consumption and services return to pre-Covid levels this year.
“A fundamental problem that has held back Chinese consumer spending, I think, is really … slower growth in household incomes, and especially for the lower income groups,” Chang told CNBC’s Squawk Box Asia on Friday.
In 2020, China’s people at risk of poverty took on more debt after the pandemic hurt employment prospects.
Chang pointed to comments made by Premier Li Keqiang last year in which he said rudely: 600 million people earn only 1,000 renminbi a month (about $ 155).
It found that migrant workers’ salaries were also recovering heavily, growing by only 2.5%, compared to 6.5% before the pandemic.
This is a headwind for Beijing as the Chinese government hopes to push ahead with its “double circulation” policy, which puts more emphasis on consumption as a major economic driver.
“To increase household consumption as a percentage of GDP, you really need to increase household income as a percentage of GDP,” said Chang.
“That means you really need to improve the distribution of income … which we know is quite difficult to do, especially after the global financial crisis and pandemic. We’re really looking globally, you know, the income gap and wealth are widening. “Gap,” she said.
Chang said that there is also a loophole where spending is made. While larger stores and malls were “quite tough,” Chang said smaller stores did not perform as well.
“If you look at the smaller store sales that make up two-thirds of total retail sales, that has really underperformed and is not even half its pre-pandemic growth rate,” said Chang.
– CNBC’s Evelyn Cheng contributed to this report.