Chinese Consumer Confidence in Focus (Part One)

Hush-hush. Does China face deflation risk?

“The Chinese economy does not face the risk of deflation, nor will it be an issue in the future”, said Fu Linghui, a spokesperson for the National Bureau of Statistics, noting that low consumer prices are just a transitory phenomenon… The effect of measures to shore up consumption, the improvement of employment, rising incomes and consumer confidence will lead to an overall rise in the CPI.” Global Times

“China’s economy is at risk of being caught in a confidence trap as the post-covid recovery loses steam, presenting Beijing with a problem that can’t easily be solved with traditional tools such as interest rate cuts and infrastructure stimulus.” Bloomberg

”For Anna Li, this year has been the worst she can remember for finding a job in China, harder even than during the pandemic. ‘I’ve been applying for jobs for half a year. I’m really exhausted but I’ve not received an offer yet,’ the 25-year-old graduate in the country’s wealthy eastern Shandong province said, adding that even if she did land a position, salaries for office jobs were often unlivable.” Financial Times

As promised, I’ll expand on China’s confidence issues, with the focus on consumers.

BTW, congratulations on a successful Greenwich Economic Forum Hong Kong last week, the first GEF outside North America. I watched several “Old China Hands” speaking: Mark Mobius, Peter Lewis, Oliver Weisberg, and Economics Nobel Laureate Michael Spence. Very good insights.

On the China investability debate, I increasingly recognize a pattern:

Consumption as the last defense against all China naysayers.

So for the last 30 years, the West has been calling a “China collapse”. For 30 years, the ultimate comeback is about Chinese consumption. “Look, there are over a billion Chinese that need to be fed, clothed and serviced”, the pro-China camp might say, “China is simply too big to ignore”. I myself made the same argument years ago.

But I’m afraid the same defense may not work anymore…

For one thing, China’s population already peaked in 2022. Some say it may have peaked earlier because the government data can’t be trusted. In any case, China’s population dividend is over.

Also, consumption isn’t and can’t always be the economy’s White Knight. It is the economy, at over 50% of China’s GDP. Rather than saying consumption saves the economy, I’ll say consumption growth is mainly a result of economic growth, which is driven by industrial production, exports and investments. In this case, consumption is not the cause but the effect.

“We will spare no effort to expand domestic demand, place the recovery and expansion of consumption as a topmost priority, and further give play to the role of consumption as a foundation for the economy.” He Lifeng, Vice Premier of China, April 2023

Is Unemployment the Problem?

Yes and no.