Why Chinese consumers are not in the mood for a spending spree
US and Australian consumers celebrated the end of pandemic restrictions by going on major spending sprees. Their Chinese counterparts are being much more frugal.
When Beijing ended three years of a strict zero COVID-19 policy last December, many analysts expected a strong economic rebound in the world’s largest economy, fuelled by consumer spending.
Instead, the ongoing problems in the country’s property market, and high levels of youth unemployment, have dented confidence.
“The Chinese consumer is a bit more stunned by what’s happened and is not in a splurging mood right now,” Vincent Clerke, the head of the giant container shipping group AP Moller-Maersk, said in an interview with the Financial Times.
Economic activity has been dented by ongoing problems in the Chinese property market, which accounts for about a quarter of the country’s output.
Residential floor space sold in China dropped by nearly 27 per cent last year, while real estate investment fell by 10 per cent, according to official numbers.
Although Chinese regulators have announced new measures that allow banks to lend more to property developers, analysts warn that this benefits developers that are in a sound financial position.
In contrast, little has been done to help property developers that face severe financial difficulties, or to deal with the problem of the millions of unfinished apartments.
At the same, Chinese exports are falling sharply as global demand weakens. And that’s putting pressure on Chinese businesses to reduce their costs by shedding staff and cutting wages.
These strains are being felt across the economy, from travel companies to restaurants.
China’s tech giants have been laying off staff, following Beijing’s crackdown on the digital behemoths. In the first nine months of last year, Baidu, Alibaba and Tencent shed at least 24,000 jobs.
And Chinese online tutoring companies were hard hit when Beijing, worried about the escalating cost of education, introduced tough new rules for the sector. As the industry shrank, hundreds of thousands of employees were dismissed.
Younger workers are feeling the brunt of these cutbacks. The unemployment rate of young people between 16 and 24 years of age in urban areas of China climbed to 18.1 per cent in February.
Consumer sentiment has been further sapped by the ongoing woes of Chinese property, where Chinese households keep arbout 70 per cent of their savings.
Millions of Chinese saw their dreams dashed after pouring their savings into unfinished apartments, only to see construction grind to a halt as the developer ran out of money.
China’s policymakers set an economic growth target of 5 per cent for 2023, the lowest in decades. But even reaching this modest goal will be a struggle unless Chinese consumers become more willing to spend.