China’s consumers cautious about economy as top officials meet
China’s consumers cautious about economy as top officials meet
Shanghai is having a scorching summer. Despite the heat, business at a newly opened coffee shop has been tepid.
Owner Rose Liu spent months searching for the perfect location for her latest venture. While her sales are OK, she said they compare unfavorably to the coffee place she closed in early 2022.
“Before the pandemic, I could make money even if, to be blunt, I was selling garbage,” Liu said.
China’s government has said that from April to June, the economy grew at a 4.7% annual pace. That is slower than the 5.3% growth in the first quarter and below analysts’ expectations. The Chinese economy is being dragged by weak domestic demand and a property crisis. Retail sales — a proxy for consumption — increased by just 2% in June year on year. Imports also shrunk by 2.3% last month, while exports increased by 8.6% in U.S. dollar terms.
China’s economy “is quite cold,” said Wang Dan, chief economist at Hang Seng Bank China. “Foreign investors are leaving China, and the Chinese government [is] not trying to do anything to reverse this downturn because they want to maintain the stability and reach long-term security by investing more in supply chains rather than in consumers.”
Some analysts hope that officials at the Chinese Communist Party’s four-day meeting that kicked off Monday, called the Third Plenum, will announce economic reforms to boost domestic demand.
Liu said fewer foreigners are in Shanghai after the hard COVID lockdowns of 2022, and there is less foot traffic in her new coffee location.
“Customers who used to chase the latest food trends — maybe before there were six signature drinks on the menu, and they would order all six to taste — now they might just order one,” Liu said.
One of her loyal customers, Li Zi, is not spending as much either. She works in marketing and many of her clients are cutting their budgets, so she has less work.
In the meantime, she has cut back on her obsession: shoes. “Before, I might buy one or two pairs a month,” she said. “But now I can go for six months without buying any.”
Another customer, set designer Jia Ying, said she quit her job two weeks ago. She does not have financial pressures as she is living with her parents in Shanghai.
“Still, I am traveling less and buying fewer luxury products,” she said.
When she was growing up, China’s economy consistently expanded by double-digit rates. Today, she said, the economy “feels restrained. It is hard to describe. It is like people can’t breathe.”
Chinese consumers are feeling insecure, according to economist Wang Dan. “We can see that the Chinese economy is growing by [about] 5%, but most of that growth is driven by exports and manufacturing.”
That focus has increased trade tensions with many countries. The U.S. and the European Union have imposed punitive tariffs on China’s green energy technology exports. However, even if Chinese manufacturers could sell more solar panels, batteries and electric vehicles abroad, there is very little impact on people’s incomes in China.
“Manufacturing is highly automated. They don’t hire as many people as [the] services [sector],” Wang said.
The jobless rate remains high at 14.2% for recent graduates in May, while the overall unemployment rate hovers around 5%.
Some employed people are seeing their wages grow more slowly. That’s true in the financial sector.
“The wage freeze in [the finance] industry is quite common, and the bonus is cut to the bone. And that, on average, represents at least 15% to 20% of total income cut for a typical person in this industry,” Wang said.
Also, people feel poorer because the value of their homes is falling. Official statistics show investment in real estate dropped by 10.1% in the first half of this year.
“If you had bought a house at the peak in 2021, by now, for most cities, the housing value would have dropped by half,” Wang said.
A vegetable and fruit stand vendor, who only gave his surname, Zhao, for fear of official retaliation, said he’s doing only half the business he did before the COVID pandemic. He’s not sure why.
He scoffed when asked how he sees his business for the next three to five years. “I don’t know how long I’ll live, so I don’t dream too much,” Zhao said.
It’s hard to predict what is going to happen even day to day, according to bistro owner Du Guohao. That is why he is cutting back on all types of spending, including food and rent.
“At my restaurant, we’re now doing fixed-price menus,” Du said. “We’ve cut the price of each meal, and customers are buying more dishes. They feel they’re getting good value for money.”
An hour after I spoke to Du, the Shanghai police came to the Marketplace office. They said someone I had interviewed for this story had complained and wanted to make sure I was a real journalist. An officer took a photo of my passport and press card.
It seems that just asking how consumers are getting by in this economy gets some people hot under the collar.
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