One thing is missing from Hong Kong China’s otherwise remarkable economic recovery: a steady gain in consumer spending.
Although China’s only major economy expanded during the 19 epidemics last year, its growth remained highly unbalanced, relying heavily on exports of manufactured goods to the United States and elsewhere. Domestic consumption has lagged far behind, retail sales are down 3.9% in 2020 compared to the previous year, and demand for imported goods has declined slightly.
There are many reasons for weakness. Although China’s unemployment rate has never risen as high as in the United States and Europe, many employers cut wages or hours, leaving consumers worried. Many people choose to save more money – a common trend in China, with very high savings rates.
The Chinese government also did not give consumers checks as the United States did, and instead chose to focus on helping factories and other businesses.
Many economists now believe that the weakness in spending will continue until 2021. If that happens, it could mean that the Chinese economy is less than expected to help other economies out of trouble this year.
It has also reversed China’s long-term goal of building an economy that relies less on investment and factories, which has been China’s economic miracle since the 1980s but over time, including this year. Also seen as a reduced return offer. Export growth, which boosted China in 2020, could slow in 2021, as Western consumers re-travel and travel to restaurants and potentially buy fewer toys and gadgets from China.
“You have real restrictions on where this recovery can go in China and how fast its economy can go. [the government] Leyland Miller, chief executive officer of China Badge Book, a research firm that conducts a private survey of China’s economy, said the use would not work.
Yan Ling, a 25-year-old teacher living in the central city of Chongqing, said she intends to eliminate illicit items such as snacks and clothing because she fears a resurgence of epidemics could threaten her job security. Is. While her income has returned to epidemic levels, her monthly salary was only 60 460 or one-third of the normal during the epidemic last year, as elementary school was temporarily closed.
“The epidemic made me realize the importance of saving,” he said.
China’s economy is still booming, with growth expected to reach 7 or more this year, far ahead of the United States and other major economies. Some economists believe that China’s growth could turn into a good cycle that eases consumer concerns and fuels stronger spending.
Wealthy Chinese, like their American counterparts, have been buying heavily, providing a rare source of growth for some Western brands. Munich-based luxury carmaker BMW saw its profit rise nearly 10 percent in the third quarter on strong demand from Chinese buyers. Italian luxury goods maker Prada reported a 52% increase in sales in China in the second half of 2020.
But China failed to overtake the United States as the world’s largest retail market in 2020, as some analysts had expected, despite narrowing the gap by years and a large population. Based on data from the Census Bureau, retail sales in the United States are projected to increase slightly to 6.24 trillion in 2020.
Economists say Covid-19 has also exacerbated structural problems that have long held back the spending power of Chinese consumers, and requires strong political will to reform. These include the widening gap in wealth, the heavy reliance on NGOs and the lack of a comprehensive social security, which has saved many families from emergencies.
Although China’s household savings rate fell from 25 percent of GDP in 2010 to 23 percent in 2018, it is much higher than the global average, according to the International Monetary Fund. A survey by China’s central bank in the third quarter of 2020 found that 50% of households say they plan to save more than 45% a year ago, while very few say they plan to save more. Intend to spend or invest.
The recent outbreak of Kovid-19 in Hebei Province and the recent lockout have raised fears that retail sales will ease during China’s upcoming Lunar New Year holidays, which are generally a strong season for consumer spending.
“Consumption is unlikely to return to pre-eruption levels in 2021,” said Dan Wang, chief economist at Hang Seng Bank China.
One concern is that China’s job market is volatile. According to Gan Li, professor of economics at Texas A&M University, China’s urban employment rate has returned to pre-epidemic levels by September, but the estimated workload is less than 40 percent below normal. ۔
The average income of private sector employees fell by 29% in September compared to a year earlier.
“The low workload reflects depressed demand, which means that recovery in the job market is still very fragile,” Mr. Gunn said.
China Yong, a fuel seller for China National Petroleum Corporation in Qingdao, Hubei Province, said its annual revenue fell from about $ 46,200 to $32,340 before the outbreak, due to gas stations and factories. Like clients looking for cheaper supplies elsewhere.
“I usually buy Barbie bags and clothes every year, but not in 2020,” said Mr. Chen, 38.
The second factor that may limit spending is: the steady rise in housing prices, which is increasing the affordability of affordable housing for younger families and is devoting more and more to housing.
Mr. Gan’s study at Texas A&M shows that a 5% increase in Chinese housing prices reduces consumption by 4.5% for households who save to buy a home, even though it does outperform existing homeowners. In the meantime, it is possible to increase the cost a bit. Overall, it should reduce total spending by 1.8%.
Edward Liu, who is looking to buy his first apartment in Shanghai, said he is refraining from spending on savings to pay down.
“People around me talk about buying real estate almost every day,” said Mr. Liu, 28, who works as an analyst at a brokerage firm and said his illness had no negative impact on his income. have seen. “Anxiety is highly contagious.”
Chinese officials have suggested in recent months that they will take steps to boost consumption this year, with some officials describing “demand-side reforms”, although little detail has emerged. ۔
“You’ll need to allocate resources, whether it’s land, credit or more skills to efficient companies,” said Jing Yangchen, HSBC’s China economist. “But of course there will always be some resistance to this kind of reform.”