MNI: Consumer Spending A Concern For China's Economic Rebound

More measures to drive employment and boost demand in China are needed to help spur consumers to start spending more in the second half of the year to push an economic rebound, according to analysts.

Consumption has gained impetus from a mid-year online shopping spree as pandemic curbs were eased for some Chinese major cities, including commercial hub Shanghai, after two months of strict lockdown that brought most deliveries to a halt.

The “618” Shopping Festival held by e-commerce platforms in China saw online retail sales during June 1-18 reached CNY695.9 billion, a rise of 8.2% y/y, though slower than the 26.5% growth same period last year, according to Syntun, a Beijing-based e-commerce big data provider.

E-COMMERCE

Judging from the “618” data, the rebound in e-commerce is likely to continue into June, with trunk transportation and delivery business normalising. Online good sales rose 7% in May, reversing April’s 5.2% fall, while the business volume of deliveries also increased 0.2% to overturn April’s 12% decline, analysts from CITIC Securities wrote in a research note.

Though the CITIC analysts pointed out that the recovery pace of consumption may be slower than two years ago when the economy rapidly emerged from the initial hit of the Covid-19 outbreak as purchasing power has been damaged following longer lockdowns and stricter curbs.

Consumers cut costs on goods such as skincare and cosmetics, which fell about 20% y/y during the “618” period, while maintaining spending on necessities such as hygiene products and fast food which rose about 30% y/y, data by Syntun showed.

UNEMPLOYMENT

Such cautiousness suggests pent-up demand may not immediately surge following the eased Covid-19 curbs, given higher debt repayment pressures compared to major developed countries and increased precautionary saving amid rising uncertainty about incomes, according to analysts from Ping An Securities.

Though the economy has shown some early signs of bottoming out in May, the recovery in employment has lagged. The employment sub-index for services PMI continued to drop 0.5 points to 45.3 in May, hitting a new low since the pandemic, while the manufacturing PMI increased only 0.4 points to 47.6. SEE: MNI: Mixed China May Retail, Industrial Data Shows Policy Need

The weakness in services amid tightened regulations on the real estate, education, and Internet sectors, as well as record high college graduates are pressurizing the job market, the Ping An analysts said.

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Policymakers are now betting on boosting sales of cars and home appliances to revive the consumer market, with stimulus ranging from a 50% cut in the car purchase tax along with subsidies as well as issuing consumer coupons and “red envelops” in the form of e-CNY.

Car sales fell by 16.9% y/y in May, narrowing from a 35% decline in April, supported by resumed production at factories closed during the lockdowns. But higher gasoline prices this year which have driven up the consumption growth by 5%, is pressurizing the auto market, so is the continuous chip shortage, wrote Cui Dongshu, secretary-general of China Passenger Car Association in a blog post.

Local governments including Guangzhou, Shenzhen and Hangzhou cities have successively issued e-CNY red envelops and coupons to boost consumer demand, and it is reported that Xiamen city will issue over CNY20 million red envelopes this week, while Wenzhou city is about to issue CNY30 million of e-CNY.

Yao Yang, dean of the National School of Development at Peking University, said in a forum last weekend that China should consider issuing CNY1.5-2 trillion of Special Treasury Bonds to help fund a wider issuance of consumer coupons, as the use of it can be directly converted into spending.