by Luna Sun in SCMP, Dec 26, 2023
Beijing: Millions of middle-class Chinese are tightening their belts, not “daring to spend” until a solid economic recovery is in sight.

Easing unemployment pressures and lifting prospects for public wealth growth are among key tasks mapped out by top Chinese leaders for the new year, as the post-Covid economy struggles against persistent deflation risks amid a property market slump and bleak business sentiment.

But despite robust savings and the lure of VIP services from wealth managers at the banks, even relatively affluent Chinese are not keen to invest or spend like before.

“The stock market and real estate are in a slump and almost all kinds of investments are shrinking, no one dares to spend,” a small-business owner named Huo from China’s southern tech hub of Shenzhen said.

“The economy is not doing well so everyone is worried about the future, so why should I spend money? Consumption can’t be boosted by a few more purchases of clothes or jewellery.”

Official data bears out Huo’s pessimism. Property sales by floor area in the first 11 months of 2023 fell by 8 per cent year on year, according to the National Bureau of Statistics. Compared to 2019, the slide was more than 32 per cent.

Retail sales rose by 10.1 per cent in November amid a continued rebound following a dismal second quarter, though this was mainly thanks to low base of comparison last year due to massive lockdowns in many cities under China’s strict zero-Covid restrictions.

For Luo, the owner of a textile and furniture export firm also in Shenzhen, a glimmer of hope has emerged in the past few months. But “it is still early and [the rebound] won’t be quick as it will take several months to place an order and deliver the products”, Luo said.

Daniel Zipser, McKinsey senior partner in China, said the sentiment was “around an all-time low”, though the outlook for the consumer market was cautiously optimistic.

“The days of double digit growth of China consumption are over,” he said. “At the same time, we have seen very strong growth when it comes to food service, restaurants, bars and entertainment, and we also see a massive increase in terms of travel.”

Household savings countrywide rose by 17.8 trillion yuan (US$2.49 trillion) in 2022, with bank deposits increasing by about 26.3 trillion yuan, the People’s Bank of China said.

Economists said it was a hopeful sign that consumers would have money to spare when confidence is restored. But the important question is when that would happen, as so far it has not, said Zipser, though he expected a slight recovery in consumption next year.

Yao Yao, a project manager in Shanghai, said she could not help but be more careful with her spending despite her stable job and steady income. Social media platforms flooded with posts on joblessness and hopeless job hunting were fuelling her concerns, the 28-year-old said.

“Even if I want to buy clothes, I will hesitate and think there are actually a lot of clothes in my wardrobe, and I don’t need similar ones,” Yao said.

The surveyed urban unemployment rate in China has stabilised around 5 per cent in recent months. More than one out of every five persons aged 16 to 24 were unemployed when the government stopped releasing age-wise breakdowns in July.

The former director of an institute under China’s top policy research body pointed to the need to create a “positive cycle” in the economy.

“Consumption is not about emptying the pockets of consumers; more importantly, it is about fostering a positive cycle among industrial development, increased employment, enhanced income, and consumption,” Wang Wei, who until recently headed the market economy institute under the Development Research Centre of the State Council, told an economic forum hosted by Renmin University in Beijing last week.

“Therefore, unlocking consumption potential requires the support of the manufacturing and service industries. At the same time, it is necessary to create new industrial and consumption industries based on emerging demands.”

Jeongmin Seong, a partner at McKinsey Global Institute, also pointed to the importance of business confidence.

“If businesses can spot market opportunities, they will increase their investments, leading to a favourable job market. As consumers see this trend, they will gain confidence and start spending, and so forth. Therefore, we need to establish this positive cycle.”

China’s largest state-owned banks lowered their deposit rates again on Friday, the third time this year, partly in a bid to boost consumption.

But according to Xu Tianchen, a senior economist at the Economist Intelligence Unit, the move was unlikely to have a big impact, and “could even work to the contrary, as lower expected returns on deposits could encourage people to save even more”.

The EIU expects consumption to expand by 5.5 per cent in real terms next year, meaning it would continue to outstrip headline growth.

“However, there is unlikely to be any ‘big stories’ for consumption next year,” Xu said. “The purchasing power of low-income households will grow as their financial situation recovers. However, leaders must try their best to bridge the widespread ‘confidence gap’ before the rich and the middle class are mentally ready to spend more.”
https://www.scmp.com/economy/china-economy/article/3246222/chinas-middle-class-does-not-dare-spend-until-post-covid-economy-shows-clear-signs-recovery?module=top_story&pgtype=homepage