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Despite a moderate slowing in 2017, household consumption growth should uptick somewhat in 2018 as a delayed response to the growth in disposable income that occurred in 2017. All three major measures of consumption in China showed a downward trajectory in 2017, although the growth rates were still standout against international comparators.
Although household disposable income grew in 2017, it did not drive commensurate consumption growth. Why? This was likely due to the drag exerted by the sharp growth in household indebtedness that occurred from 2015 to 2017. Household debt surged during this period as a function of overheated real estate markets and a sharp increase in consumer borrowing, both for mortgages and for credit-based purchasing.
Tightening policy controls on the real estate sector and on household borrowing should work to tamp down housing prices and consumer credit expansion, and thus enable household income growth to flow more toward the consumption of goods and services in 2018, hence driving an overall uptick in consumption growth.