MNI INTERVIEW: China Consumption Key To Growth - Advisor

Greater fiscal support and higher income growth will boost Chinese consumer activity in 2024, a key driver of GDP growth this year, however, retail sales will likely not match last year's levels, an advisor from a policymaking think tank told MNI in an interview.

Retail sales will likely increase by 5-6% y/y, said Zou Yunhan, deputy director at the Economic Forecasting Department of the State Information Center, which is affiliated with the National Development and Reform Commission.

Retail sales gained 7.2% in 2023, with final consumption expenditure contributing 82.5% to economic growth, up 43.1 percentage points from 2022.

However, retail sales fail to give a complete picture of the consumer market as it does not capture spending on services other than catering, leaving out significant growth in outgoings on entertainment, transportation, and elderly care, Zou cautioned. Service retail sales, a new indicator published by the National Bureau of Statistics (NBS) last year, grew 20% y/y in 2023, she added.

Zou expects the consumption contribution rate to remain high in 2024 should GDP grow about 5% as the economy rebalances from a drawn-out property downturn and an increasingly challenging trade environment.

China is expected to set its annual growth target at "about 5%" within the 2024 Government Working Report set to release on March 5 during the opening ceremony of the National People’s Congress. The economy grew by 5.2% in 2023. (See MNI: High Local Targets Hint At Further China Gov. Leverage)

CONSUMER CONFIDENCE

“Spending willingness is rebounding from the lowest point in the past four years, but there still is a gap before returning to the normal state,” Zou said.

The NBS’s consumer confidence index rose by 1.2 points to 87.6 between June and December 2023, but the metric remains far below the pre-pandemic 120 level noted throughout 2019, she added.

Deposit growth had also slowed, Zou continued, noting resident savings increased by CNY16.7 trillion last year, less than 2022's CNY17.9 trillion. Zou believes improved income expectations based on economic recovery will help, with disposable income likely to keep pace with – or slightly exceed – GDP growth.

CAR, APPLIANCE SALES

The Central Financial and Economic Affairs Commission, headed by President Xi Jinping, last month encouraged equipment renovations and a trade-in scheme for consumer goods, such as automobiles and home appliances.

The meeting committed the central government to fiscal support, rising expectations for larger size of funds, compared to sales campaigns in recent years which only "encouraged wealthy regions to provide subsidies".

Huachuang Securities analysts estimate the central government may provide fiscal subsidies of about CNY100 billion, pointing to 2022 support when authorities temporarily reduced the purchase tax on some passenger cars by CNY60 billion.

Zou noted significant demand exists among the public to replace old home appliances.

The last large-scale sales campaign occurred between 2009-2013 when 293 million major appliances were sold to the countryside, many of which should have reached their safe use life of 8-10 years.

Households want to upgrade to smart home appliances, and appetite for new energy cars has grown rapidly, Zou continued.

China's smart home appliance market will reach USD87.8 billion in 2025 to become the world's largest, while the sale of electric cars may increase to about 15 million in 2025 from 2023’s 9.5 million, according to market forecasts.