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China’s consumption is set to receive a boost from a slew of government measures after the world’s second-largest economy witnessed a period of sluggish economic growth between April to June 2023.
Earlier this week, the country’s commerce ministry announced a series of 11 measures to boost China’s household consumption. This includes promoting domestic consumer goods, providing credit support for goods consumption, and encouraging businesses to create online platforms for the delivery of local goods and services.
Along with that, the measures also talk about encouraging local governments to help Chinese residents with renovating their old homes and improving the country’s green supply chain.
“China has not been able to completely convert the economy to consumption…directly stimulating consumption is not without its own challenges, since any action on income could ultimately end up being swallowed in the real estate sector which the authorities – for good reasons – may want to avoid spurring again,” said Gilles Moëc, AXA Group Chief Economist and Head of AXA IM Core Investments Research.
China consumption outlook remains strong despite GDP woes
The 11-point package of measures aimed at boosting China’s consumption was announced by the government a day after the country’s GDP recorded a slower-than-expected growth rate of 6.3% between April to June of 2023. This figure was well below expert projections of 7.1%.
Additionally, the country’s retail sales, an indicator of the country’s consumption levels, increased by only 3.1% year-on-year in June 2023, down from a high of 12.7% in May. Along with that, China’s unemployment rate for persons aged 16 to 24 hit a record high, reaching 21.3% by the end of June 2023.
Faced with this situation, NDRC official Jin Xiandong, at a press conference on July 18, said: “Consumer purchasing power and expectations are relatively weak, while consumption infrastructure and environment need to be improved.”
“Focusing on stabilising…bulk commodity consumption, improving automobile and electronics consumption as well as optimising consumption environment, we will introduce a batch of practical and effective policies and improve their implementation as soon as possible,” he added.
However, despite weak economic data coming out of China, the outlook for China’s consumption still looks positive.
“The good news is that, despite pockets of high unemployment among younger people, the labour market appears relatively healthy overall. As such, it probably wouldn’t take a huge amount of policy support to push unemployment to levels consistent with faster wage growth,” said Capital Electronics. “That, in turn, would result in positive spillovers to consumer spending and the housing market.”
Meanwhile, Abrdn says China’s consumer market is already half the size of that in the US. And by 2050, it will grow by 10%, amounting to $25 tn.
“Much will depend on China pivoting from an investment-intensive to a consumption-led growth model. But even if this pivot is gradual, we estimate it will still be the dominant driver of global consumption by the early 2040s,” the asset manager added.
