China’s consumer spending expected to weaken further this year
August 13, 2019 Category China News Round-up, Weekly
Chinese consumer spending is likely to slow for the rest of the year as a result of the uncertainty created by trade tensions with the United States, analysts said. This could exert downward pressure on economic growth, given that the government is counting on consumers to play a big part in mitigating the effects of the trade war. The role of consumption in China’s economic growth has changed in recent years – it accounted for 76% of gross domestic product (GDP) growth in 2018, up from less than 50% in 2011. This change was mainly the result of a slump in manufacturing investment, analysts said. That, in turn, could slow income growth and consumer confidence given that a significant share of workers’ salaries in China still comes from the manufacturing and export sectors.
“It’s certainly not going to be a case where the consumer comes to the rescue, because in China’s case, the consumer is also suffering from the trade war,” said Julian Evans-Pritchard, Senior China Economist at Capital Economics. “Actually, the trade war is negative for consumption because it affects consumer confidence and it affects real income growth.” The per capita growth rate for China’s consumer spending was about 8% in June, compared with about 10% in June 2018, according to Andy Rothman, Investment Strategist with Matthews Asia. In comparison, per capita disposable income growth was 9% in June, the same as a year earlier.
Chinese consumers have been holding back on buying cars, property and other goods and services. A survey by the People’s Bank of China (PBOC) showed that 79% of respondents wanted to save money rather than spend it. In a recent report, Bank of America Merrill Lynch predicted that the retail sales growth rate compared to a year earlier – before accounting for inflation – would slow to 8.6% in July from 9.8% in June. This was largely because car sales, which were boosted by big discounts before higher emission standards took effect on July 1, lost momentum. Online goods sales growth could also ease following annual promotions at e-commerce platforms such as JD.com and Tmall.com on June 18, Bank of America Merrill Lynch said. So far Chinese authorities have made no major announcement of additional monetary or economic stimulus to offset the effect of higher tariffs, the South China Morning Post reports.
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