BEIJING – China’s consumer-driven recovery is flashing warning signs as spending on everything from holiday travel to cars and homes loses momentum, adding to expectations for more stimulus to support the economy.
Domestic travel spending during the recent holiday for the Dragon Boat Festival was lower than pre-pandemic levels, according to official data released last weekend. Home sales figures are below the levels in previous years, while estimates for June car sales showed a drop from a year ago.
The rebound in consumption after China shed its Covid-19 controls has propelled growth so far in 2023, but confidence is weak and evidence is mounting that the economy may need more help. After the central bank cut policy rates earlier in June, economists raised their expectations for more monetary and fiscal stimulus, and state-run media outlets have also published a series of articles in recent days highlighting possible avenues of support.
The holiday tourism data pointed to “fading post-Covid-19 recovery momentum for in-person services”, Dr Lu Ting, chief China economist at Nomura Holdings, wrote in a Sunday research note.
He noted that the average spending per trip was about 16 per cent lower than in 2019, “implying either a weaker intention to spend or less purchasing power”.
“As pent-up demand fades and the risk of an economic double-dip becomes more real in the coming months, we expect in-person service consumption growth to weaken further,” Dr Lu wrote.
Not all of the recent data suggests a slowdown, with box office revenue reaching the second-highest amount on record for the Dragon Boat holiday, the official Xinhua news agency reported. But other indicators show that spending is not gaining momentum.
Home sales in major cities were muted in the first few weeks of June and over the holiday period, the 21st Century Business Herald reported, citing research analysts. Passenger car sales in the month are expected to have dropped nearly 6 per cent from 2022, according to preliminary estimates from China’s Passenger Car Association.
Growing concern over gross domestic product (GDP) growth have fuelled speculation about the possibility of increased stimulus in 2023.
Last week, Mr Wang Huning – the No. 4 official in China’s ruling Communist Party – held a meeting with representatives of other Chinese political parties to discuss policy suggestions for reviving consumption. Then on Monday, two state-run securities newspapers floated a series of suggestions from analysts on policy options that Beijing could consider.
One fiscal measure would be to accelerate the sale of special local government bonds – a key source of infrastructure funding – so that the local authorities use most of their quota by the end of the third quarter, according to the China Securities Journal, citing economist Gao Ruidong at Everbright Securities. Local governments have so far been slow to use their quota in 2023.
Shanghai Securities News, meanwhile, reported that further monetary easing – including cuts to interest rates and the amount of cash that banks need to keep in reserve – is likely in the second half of 2023.
However, any stimulus is unlikely to be large in scale, according to Mr Louis Kuijs, chief economist for Asia-Pacific at S&P Global Ratings. The firm cut its forecast for China’s 2023 GDP growth to 5.2 per cent from 5.5 per cent, citing the uneven recovery.
The government could still consider measures such as easing housing purchasing restrictions and mortgage down payment requirements, along with possible “fiscal support for consumption”, Mr Kuijs wrote in a Sunday report.
While the “recovery in consumer confidence is slow”, he said, some retail sales and discretionary spending data has held up, suggesting an expansion in the rest of 2023 and into 2024. BLOOMBERG
