China Consumption Monthly Roundup | August 2024
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China Consumption Monthly Roundup | August 2024

29 August 2024 / Report

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Trusted Insights for What’s Ahead™

Growth in retail sales increased 2.7% y-o-y in July, up from 2.0% in June. 

  • This is driven by the summer peak season for travel and entertainment and a relatively low comparison base the same period last year. Despite the improvement, retail sales growth remained weak compared to pre-COVID levels.
  • Overall, growth in retail sales of services continued to normalize after a year of rapid acceleration, while growth in retail sales of goods picked up, driven by spending on cell phones, sport and recreational goods.

Sales of new energy vehicles (NEVs) surpassed sales of traditional cars for the first time due to strong policy support.

  • NEV sales continued growing robustly in July driven by government policy and low prices. While authorities are also providing support to boost traditional car sales – albeit relatively less compared to NEVs – these saw a significant contraction. As a result, NEV sales accounted for 51.1% of total car sales in China.
  • In August the government increased auto trade-in subsidies from RMB 10,000 to RMB 20,000 for NEVs, and from RMB 7,000 to RMB 15,000 for traditional cars. We expect this to help drive car sales for the rest of the year, especially for NEVs given the higher subsidy they are benefiting from.

The Chinese government is intensifying support to help the property sector bottom out.

  • The series of measures that the government has released since last year have proven insufficient to stop the property downturn. All key real estate indicators persist on contractionary territory. 
  • Given the decisions reached at the 20th Central Committee of the CPC (aka. “Third Plenum”), it is likely that support will intensify over the coming months – whether this is sufficient for the property sector to bottom out from its downturn remains to be seen. Among other measures, this includes allowing local governments to relax restrictions by themselves; promoting urban residency for migrant workers; and converting unsold stock into affordable housing units. In terms of monetary policy, last month the People’s Bank of China (PBOC) cut both short-and-long term rates by 10 basis points and its mid-term lending facility rate by 20 basis points in order to improve financing conditions, though this will not necessarily lead to a significant increase in loans because of weak confidence from developers and home buyers.

The labor market remains under pressure.

  • China’s headline unemployment rate edged up in July, driven by rising youth unemployment. Purchasing Managers’ Index (PMI) employment subindices remained in contractionary territory, indicating weak hiring intentions. 

Looking ahead, we expect consumption growth to remain moderate.

  • We believe Chinese consumers will remain risk-averse and price-sensitive as long as the underlying factors dampening confidence levels are not addressed. Chief among these is the downturn in the property sector and the resulting decrease in consumer wealth levels. Other factors include labor market weakness and slower income growth as well as structural imbalances that drive the need for precautionary savings, e.g. the lack of a robust social safety net. This said, we do expect to see short-lived periods of pent-up demand releases during holidays and shopping festivals.
  • The Third Plenum recognized the importance of building an enabling environment for private consumption, and outlined a series of tasks to this end, including: improving the income distribution and employment systems; strengthening the social security system; increasing the retirement age; and improving public services. How precisely these objectives will be achieved remains to be seen, especially in light of the 2029 deadline that China’s top leadership set to deliver on the Third Plenum’s decisions. The fact of the matter is that addressing the structural imbalances that are weighing on China’s domestic consumption requires major reforms and time. 
  • However, government support has so far remained modest. This includes interest rate cuts and the decision to issue RMB 300 billion (USD 41 billion) of special treasury bonds to finance equipment upgrading and consumer trade-in programs. It has also been reported that authorities plan to increase the National Social Security Fund's investment in the domestic capital market, especially strategic sectors, for better returns so that it can meet population ageing challenges.

Trusted Insights for What’s Ahead™

Growth in retail sales increased 2.7% y-o-y in July, up from 2.0% in June. 

  • This is driven by the summer peak season for travel and entertainment and a relatively low comparison base the same period last year. Despite the improvement, retail sales growth remained weak compared to pre-COVID levels.
  • Overall, growth in retail sales of services continued to normalize after a year of rapid acceleration, while growth in retail sales of goods picked up, driven by spending on cell phones, sport and recreational goods.

Sales of new energy vehicles (NEVs) surpassed sales of traditional cars for the first time due to strong policy support.

  • NEV sales continued growing robustly in July driven by government policy and low prices. While authorities are also providing support to boost traditional car sales – albeit relatively less compared to NEVs – these saw a significant contraction. As a result, NEV sales accounted for 51.1% of total car sales in China.
  • In August the government increased auto trade-in subsidies from RMB 10,000 to RMB 20,000 for NEVs, and from RMB 7,000 to RMB 15,000 for traditional cars. We expect this to help drive car sales for the rest of the year, especially for NEVs given the higher subsidy they are benefiting from.

The Chinese government is intensifying support to help the property sector bottom out.

  • The series of measures that the government has released since last year have proven insufficient to stop the property downturn. All key real estate indicators persist on contractionary territory. 
  • Given the decisions reached at the 20th Central Committee of the CPC (aka. “Third Plenum”), it is likely that support will intensify over the coming months – whether this is sufficient for the property sector to bottom out from its downturn remains to be seen. Among other measures, this includes allowing local governments to relax restrictions by themselves; promoting urban residency for migrant workers; and converting unsold stock into affordable housing units. In terms of monetary policy, last month the People’s Bank of China (PBOC) cut both short-and-long term rates by 10 basis points and its mid-term lending facility rate by 20 basis points in order to improve financing conditions, though this will not necessarily lead to a significant increase in loans because of weak confidence from developers and home buyers.

The labor market remains under pressure.

  • China’s headline unemployment rate edged up in July, driven by rising youth unemployment. Purchasing Managers’ Index (PMI) employment subindices remained in contractionary territory, indicating weak hiring intentions. 

Looking ahead, we expect consumption growth to remain moderate.

  • We believe Chinese consumers will remain risk-averse and price-sensitive as long as the underlying factors dampening confidence levels are not addressed. Chief among these is the downturn in the property sector and the resulting decrease in consumer wealth levels. Other factors include labor market weakness and slower income growth as well as structural imbalances that drive the need for precautionary savings, e.g. the lack of a robust social safety net. This said, we do expect to see short-lived periods of pent-up demand releases during holidays and shopping festivals.
  • The Third Plenum recognized the importance of building an enabling environment for private consumption, and outlined a series of tasks to this end, including: improving the income distribution and employment systems; strengthening the social security system; increasing the retirement age; and improving public services. How precisely these objectives will be achieved remains to be seen, especially in light of the 2029 deadline that China’s top leadership set to deliver on the Third Plenum’s decisions. The fact of the matter is that addressing the structural imbalances that are weighing on China’s domestic consumption requires major reforms and time. 
  • However, government support has so far remained modest. This includes interest rate cuts and the decision to issue RMB 300 billion (USD 41 billion) of special treasury bonds to finance equipment upgrading and consumer trade-in programs. It has also been reported that authorities plan to increase the National Social Security Fund's investment in the domestic capital market, especially strategic sectors, for better returns so that it can meet population ageing challenges.

Authors

Alfredo Montufar-Helu

Alfredo Montufar-Helu Alfredo Montufar-Helu

Former China Center Leader
The Conference Board

Read Bio

Fiona  Liu

Fiona Liu Fiona Liu

Economist
The Conference Board

Read Bio

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