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| Chinese people are no longer interested in consumer spending in the context of a weak economic recovery. (Source: AP) |
Easing unemployment pressure and improving the outlook for public asset growth are expected to be among the key tasks for Chinese governments in the new year, as the post-Covid-19 economy grapples with persistent deflation amid a slump in the property market and sluggish business conditions.
Despite the still-abundant savings and the lure of VIP services offered by bank wealth managers, even wealthy Chinese are less keen on investing or spending than before.
“The stock and real estate markets are in recession, and most types of investment are shrinking, so no one dares to spend. The economic outlook is not bright, so everyone is worried about the future. Consumption cannot be boosted by buying more clothes or jewelry,” said Huo, a small business owner from Shenzhen.
According to the National Bureau of Statistics of China, real estate sales by floor area fell 8% year-on-year in the first 11 months of 2023. Compared to 2019, this is a decrease of more than 32%.
Market sentiment is “at an all-time low,” said Daniel Zipser, senior partner at McKinsey in China, although the outlook for the consumer market remains cautiously optimistic. “The days of double-digit growth in Chinese consumption are over,” he said.
The People's Bank of China said that household savings nationwide rose to 17.8 trillion yuan ($2.49 trillion) in 2022, with bank deposits rising by about 26.3 trillion yuan. Economists said this was a bright sign that consumers will have surplus money as confidence recovers.
“But the key question is when that will happen, because so far it hasn’t happened,” said Zipser, although he predicts a slight recovery in consumption next year.
“Consumption is not about emptying consumers’ pockets,” said Wang Wei, head of the Institute of Market Economy at the Development Research Center of the State Council, speaking at an economic forum hosted by Renmin University in Beijing last week. “More importantly, we need to promote a positive cycle between industrial development, employment growth, income growth and consumption.”
Jeongmin Seong, a partner at the McKinsey Global Institute, pointed out the importance of business confidence. “If businesses can recognize market opportunities, they will increase investment, leading to a favorable job market. When consumers see this trend, they will be more confident and start spending... We need to establish this positive cycle,” he suggested.
China’s biggest state-owned banks cut deposit rates for the third time this year on December 22, part of an effort to boost domestic consumption.
However, Xu Tianchen, senior economist at the Economist Intelligence Unit, said the move was unlikely to have a big impact and “may even have the opposite effect, as lower expected returns on deposits may encourage people to save more.”
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