China Center Monthly Consumption Roundup – June 2024

25 June 2024 / Report

Trusted Insights for What’s Ahead™

Growth in retail sales accelerated to 3.7% y-o-y in May, up from 2.3% in April

This was largely driven by an increase in travel-related spending over the May Day holiday, and by a rise in online sales during the annual 618 online shopping festival, which started in mid-May. Still, growth in retail sales of services continued moderating relative to last year’s strong growth; and while the positive effect of the 618 festival on online sales of goods will continue in June, the momentum won’t likely be sustained over the rest of 2024 due to continued consumer confidence weakness.

Policy support is helping drive NEV sales, but remains insufficient to stop the property downturn

Continued government policy support has helped sales of new energy vehicles (NEVs) to remain robust, but has not been able to alleviate China’s ongoing property malaise. In late-May, the PBOC provided detailed instructions to banks on how to implement the recently announced RMB 300 billion (USD 41 billion) relending program for the acquisition of unsold housing units. It will take time for the measures to take effect and the full impact of these measures remains to be seen.

The labor market remains under pressure

China’s headline unemployment rate remained stable in May. Despite this, the employment subindices for the manufacturing, non-manufacturing, service, and construction PMIs remained in contractionary territory, indicating that hiring intentions remain weak. Looking at different age groups, unemployment amongst young professionals (i.e. 16-29 years) remains substantially higher than other cohorts.

Trusted Insights for What’s Ahead™

Growth in retail sales accelerated to 3.7% y-o-y in May, up from 2.3% in April

This was largely driven by an increase in travel-related spending over the May Day holiday, and by a rise in online sales during the annual 618 online shopping festival, which started in mid-May. Still, growth in retail sales of services continued moderating relative to last year’s strong growth; and while the positive effect of the 618 festival on online sales of goods will continue in June, the momentum won’t likely be sustained over the rest of 2024 due to continued consumer confidence weakness.

Policy support is helping drive NEV sales, but remains insufficient to stop the property downturn

Continued government policy support has helped sales of new energy vehicles (NEVs) to remain robust, but has not been able to alleviate China’s ongoing property malaise. In late-May, the PBOC provided detailed instructions to banks on how to implement the recently announced RMB 300 billion (USD 41 billion) relending program for the acquisition of unsold housing units. It will take time for the measures to take effect and the full impact of these measures remains to be seen.

The labor market remains under pressure

China’s headline unemployment rate remained stable in May. Despite this, the employment subindices for the manufacturing, non-manufacturing, service, and construction PMIs remained in contractionary territory, indicating that hiring intentions remain weak. Looking at different age groups, unemployment amongst young professionals (i.e. 16-29 years) remains substantially higher than other cohorts.

Looking ahead, consumption growth is likely to remain moderate

Overall, Chinese consumers are more risk-averse and price-sensitive than before, and this will likely continue being the case so long as the underlying factors that are dragging down confidence levels are not addressed. Chief among them is the downturn in the property sector, which was estimated to account for up to 30% of China’s growth and about 70% of Chinese households’ wealth. The ongoing weakness in the job market is another factor. And there are also deep-rooted structural imbalances that, under the current economic conditions, are exacerbating people’s perceived need for precautionary savings – e.g. the lack of a robust social safety net. Some alleviation will come from sporadic releases of pent-up demand driven by people’s desire to travel over holidays and to get a ‘good deal’ during shopping festivals.