Consumers in the world’s second-largest economy are cutting back on spending, even as China faces the most deflationary pressure in three years.
About this writes Financial Times.
China’s consumer prices have been in a state of deflation for the past four months, and fell in January at the fastest annual rate in 15 years, it said. While food is the main driver, and prices in other sectors are rising, companies selling everything from cosmetics to electronics are offering discounts.
In addition, car prices are falling at the fastest rate in 22 years.
With the housing market, historically a major driver of confidence, still under pressure, consumer caution remains even as people prepare for Chinese New Year, traditionally a period of heavy spending. Nor does weak price growth automatically encourage people to spend more.
According to official data, retail sales rose 7.4% in December, albeit against a low base in December 2022 as the Covid pandemic gripped the country. For the full year, affected by like-for-like base effects from the lockdowns, retail sales rose 7.2%.
Morgan Stanley’s December survey of consumers, released in January, found a slightly larger share of respondents expected the economy to improve in the next six months. But it also notes that 76% of consumers cut back on spending in at least one category in the past six months, and that across all categories, consumers were more likely to switch to cheaper brands than more expensive ones.
Fred Neumann, co-head of Asia economics at HSBC, suggested that the low level of consumption was due to a “lack of income growth”. A Morgan Stanley survey found that only 45% of consumers expect household financial conditions to improve over the next six months, the lowest figure in a year.
We will remind:
Chinese economy undergoes the strongest deflationary pressure in the past 3 years, and weak domestic demand casts doubt on economic recovery in 2024.
Apple company reported of a deepening sales slump in China, even as overall iPhone sales came in higher than expected and the company returned to revenue growth.