By Stella Yifan Xie
HONG KONG -- One thing is missing from China's otherwise
remarkable economic recovery: a strong rebound in consumer
Even though China was the only major economy to expand during
the Covid-19 pandemic last year, its growth remains highly
unbalanced, relying heavily on exports of manufactured goods to the
U.S. and elsewhere. Domestic consumption has lagged, with retail
sales shrinking 3.9% in 2020 from the previous year and demand for
imported goods falling slightly.
There are many reasons for the weakness. While China's
unemployment rate never shot up as much as unemployment did in the
U.S. and Europe, many employers cut salaries or hours, leaving
consumers anxious. Many opted to save more -- a common tendency in
China, which has long had a high savings rate.
China's government also didn't hand out checks to consumers as
the U.S. did, choosing instead to focus stimulus on helping
factories and other businesses.
Many economists now believe spending weakness will persist in
2021. If it does, it could mean Chinese demand does less than hoped
to help lift other economies out of trouble this year.
It would also set back China's long-term goal of building an
economy that depends less on investment and factories, which drove
China's economic miracle since the 1980s but are seen as offering
diminishing returns over time, including this year. The export
growth that lifted China in 2020 could ebb in 2021, as Western
consumers resume travel and spending in restaurants and potentially
buy fewer toys and gadgets from China.
"You have real restraints on where this recovery could go in
China and how much its economy can speed up, if [the government]
doesn't do more on the consumption side," said Leland Miller, chief
executive officer of China Beige Book, a research firm that
conducts private surveys on the Chinese economy.
Yan Ling, a 25-year old teacher living in the central city of
Chongqing, said she plans to keep cutting back on what she calls
unnecessary goods, such as snacks and clothes, in part because she
worries that a possible resurgence of the pandemic could threaten
her job stability. While her income has returned to its
pre-pandemic level, her monthly salary dropped to only about $460,
or a third of its usual level, during the height of the pandemic
last year, as the elementary school closed temporarily.
"The pandemic made me realize the importance of saving," she
China's economy still has considerable momentum, with growth
that is expected to hit 7% or more this year, far outpacing the
U.S. and other major economies. Some economists believe China's
growth could turn into a virtuous cycle that eases consumers'
concerns and fuels more robust spending.
Wealthier Chinese, like their U.S. counterparts, have largely
kept buying, providing a rare source of growth for some Western
brands. Munich-based luxury car maker BMW saw its profit rise
almost 10% in the third quarter, thanks to a strong recovery in
demand from Chinese buyers. Italian luxury-goods house Prada
reported a 52% sales surge in China in the second half of 2020.
But China failed to overtake the U.S. as the world's biggest
retail market in 2020 as some analysts had expected, after years of
narrowing the gap and despite having a much larger population.
Retail sales in the U.S. are estimated to have edged up slightly in
2020 to $6.24 trillion, based on data from the Census Bureau.
Economists say Covid-19 has also exacerbated structural problems
that have long curbed Chinese consumers' spending power, and
correcting them requires strong political resolve. Those issues
include a widening wealth gap, a heavy reliance on inefficient
state-owned enterprises, and the lack of a comprehensive social
safety net, which makes many families save more for
Although China's household savings rate edged down from a peak
of 25% of gross domestic product in 2010 to 23% in 2018, it remains
far above 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 said they plan to save
more, up from 45% a year earlier, while fewer said they intend to
spend or invest more.
A recent outbreak of Covid-19 cases in Hebei province and fresh
lockdowns have added to fears that retail sales will soften during
China's coming Lunar New Year holiday, typically a strong season
for consumer spending.
"It'd be highly unlikely for consumption to return to
pre-pandemic level in 2021," said Dan Wang, chief economist at Hang
Seng Bank China.
One concern is that China's job market remains on unstable
ground. While China's urban employment rate recovered to
pre-pandemic levels by September, estimated workloads were still
down by more than 40% from normal, according to Gan Li, a professor
of economics at Texas A&M University.
Average incomes among private-sector employees dropped 29% in
September from a year earlier, his research showed.
"Low workload reflects a depressed demand, which means that
recovery in the job market is still quite fragile," said Mr.
Chen Yong, a fuel salesman at China National Petroleum
Corporation in Hebei province's Qinhuangdao city, said his annual
income dropped to about $32,340 from around $46,200 before the
pandemic, as clients such as gas stations and factories looked for
cheaper supplies elsewhere.
"I'd typically buy Burberry bags and clothes every year, but not
in 2020," said Mr. Chen, who is 38.
Another factor that could limit spending going forward: a
continued rise in housing prices, which is stretching affordability
for younger families and making them dedicate more income to
Studies by Mr. Gan at Texas A&M show that a 5% gain in
China's housing prices leads to a 4.5% decline in consumption among
families saving up to buy houses, though it could boost spending
among existing homeowners to a smaller extent. Overall, it should
depress total spending by 1.8%.
Edward Liu, who is eager to buy his first apartment in Shanghai,
said he is holding back on spending to save for a down payment.
"People around me talk about buying properties nearly every
day," said Mr. Liu, 28, who works as an analyst at a brokerage firm
and hasn't seen any negative impact from the pandemic on his
income. "Anxiety is highly contagious."
Chinese authorities have suggested in recent months that they
will take steps to increase consumption this year with what some
officials have described as "demand-side reforms," though little
detail has been revealed.
"You'd need to keep allocating resources, whether it is land,
credit or more talent towards efficient companies," said Jingyang
Chen, China economist at HSBC. "But of course there'd always be
some resistance to this kind of reform."
Write to Stella Yifan Xie at email@example.com
(END) Dow Jones Newswires
January 19, 2021 10:07 ET (15:07 GMT)
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