China’s consumption is ticking up, but can it be sustained?
China’s consumption is ticking up, but can it be sustained?
Finance worker Daisy Gu prides herself on being a savvy shopper. Recently, she took advantage of a so-called trade-in program, where the government entices people to upgrade old products for newer versions at a discount.
“The government subsidies amount to 15%, even 20% off for furniture and home appliances. That is a huge discount. So, I helped my family and elderly relatives who do not know how to access the subsidies to buy beds and sofas. I’ve saved them a lot of money,” Gu said.
This subsidy program is partly why retail sales growth, which is taken as a proxy for consumption, beat analysts’ expectations and grew at 4.8% in October. Other economic data released mid-November showed a mixed bag after the Chinese government announced a raft of stimulus. While retail sales growth was the highest in eight months, and investment in infrastructure and manufacturing picked up slightly last month compared to September, the property slump continued.
In a recent news conference, Fu Linghui with the National Bureau of Statistics said the government’s so-called trade-in program was a key factory in pushing up retail sales. There were other factors.
“In October, the National Day holiday, early promotions for a shopping festival called Singles Day, as well as active transactions in the stock and property markets have all boosted consumer confidence,” Fu said.
Whether it can be sustained depends a lot on the real estate slump. Most household wealth in China is invested in property. These days, homeowners don’t feel rich.
Gu and her husband each bought a property in 2020.
“My condo has not dropped below the price I bought it, but my husband’s property has dropped by a million yuan ($138,000),” she said.
Across China, housing prices have dropped by an average of 30% since 2021, according to Yan Yuejin with the real estate research institute E-House.
Three years ago, Chinese officials made it much harder for property firms to borrow money. They wanted to rein in reckless spending. China’s housing bubble popped. Property firms started to go bankrupt. Millions of homes were left unfinished.
In the first 10 months of this year, real estate investment dropped by 10.3%.
“Some property firms have collapsed. Others have downsized, so there are fewer developers acquiring land and building,” Yan said.
However, he does not think this is all bad news. Fewer homes built will allow demand to catch up.
At the same time, the Chinese government is making it easier for those at the other end of the real estate transaction: buyers. Yan said demand is starting to pick up, especially among first-time home buyers and young families who want to upgrade to bigger homes.
“The main reason is government rules on homebuying are the loosest they’ve been in history. Like there are fewer barriers on who can buy condos in cities, and the minimum down payment has been lowered,” and interest rates for borrowing and related taxes have been cut, Yan said. “Plus, the housing price also has dropped to a stable level.”
Some analysts say Chinese leaders need more substantial fiscal stimulus. Exports, which are another economic driver for China, are expected to weaken.
This week, U.S. President-elect Donald Trump said he plans to add an extra 10% tariffs on Chinese exports as soon as he gets into office. While on the campaign trail, he threatened even higher tariffs of 60% against Chinese exports.
Meanwhile, unemployment in China remains at 5% in October, and even higher for young graduates at 17.6% in September.
Gu said her company went bankrupt and she is newly out of a job. That has forced her to spend less overall.
“In the past, I would spend 20,000 yuan ($2,800) to 30,000 yuan ($4,100) a year on beauty and skin care. Now, I spend about 10,000 yuan ($1,400) annually,” Gu said. “My consumption has dropped by at least half.”
Additional research by Charles Zhang
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