MNI EXCLUSIVE: China Q4 Retail Spending Seen Stronger-Advisors

Chinese consumer spending is recovering faster than expected and could accelerate in the fourth quarter provided the pandemic remains under control, narrowing the full-year decline, policy advisors told MNI.

"Retail sales may reach 2-3% growth in Q4, and optimistically it may achieve a total volume close to the CNY41 trillion last year," said Wang Wei, director-general of the Institute of Market Economy at the State Council's Development Research Center.

September's 3.3% gain, quickening from August's 0.5% rise, suggests consumer spending is close to a full recovery, she added, referring to an "explosive rebound" for restaurants, tourism, and entertainment during the Oct. 1-8 Golden Week holiday.

Domestic tourist numbers and tourism income in that period recovered to about 79% and 70%, respectively, of year-ago levels, while average daily sales by key retailers and restaurants increased 4.9%, ministry data showed .This was a marked improvement from June's "Dragon Boat" holidays when tourist numbers and income stood at just 51% and 31% of year-earlier levels.

High-speed railway and domestic flight capacities have reached 80-90% of pre-pandemic levels and even weaker services areas, such as hospitality and catering, are picking up. Catering revenue could reverse its decline in Q4, although entertainment activity may take longer to recover, she said.

ANNUAL CONTRACTION

"The current recovery in consumption is higher than expected, and the momentum may last into Q4 as long as the epidemic remains under control," said Yi Shaohua, director of the market circulation and consumption department at the National Academy of Economic Strategy of the Chinese Academy of Social Sciences. Yi expects the upcoming double-eleven online shopping festival in November and year-end holiday spending to help lift Q4 consumption.

According to Wang Jun, an academic committee member at the China Center for International Economic Exchanges, demand for cars, which have become a preferred mode of transport since the Covid-19 outbreak, and spending on items such as furniture and interior decoration in line with robust home sales, will help underpin Q4 retail. Luxury goods, in the past popular purchases for Chinese travelling abroad, are also in demand.

Nevertheless, advisors don't expect the quarterly rebound to be strong enough to lift annual retail sales into positive territory. Annual retail sales may fall 4-5% y/y, narrowing from the 7.2% decline in the first three quarters, according to Wang Jun, also chief economist at Zhongyuan Bank.

Wang Wei expects the recovery momentum to last into early next year, driven by demand for better goods and services and as growth boosts incomes. Q4 GDP growth might reach 5-5.5%, bringing annual expansion to around 2.5%. Annual GDP in the five years from 2021 may grow 6-7% y/y, she said.

Boosting incomes has become key to restoring consumer confidence under China's new dual circulation strategy which relies more on domestic demand.

Disposable per capita income for the first three quarters grew 0.6% y/y, turning positive for the first time this year. More people are saving as a precaution since the epidemic and new household sector deposits were more than double new borrowings in H1, Wang Jun said.

China will stick to its priority of stabilising the job market by helping companies to cut hiring and financing costs and reducing rent, rather than by providing large cash handouts to households, Wang Wei said.