China economy

Are shoppers helping China spend its way out of US trade war trouble? Retail sales data says no

Beijing had been counting on robust spending to cushion the blow of its dispute with Washington

PUBLISHED : Tuesday, 14 August, 2018, 7:01pm
UPDATED : Wednesday, 15 August, 2018, 9:35am

Growth in Chinese retail sales was slower than expected in July, lowering hopes that consumer spending could help cushion the country from the blows of the trade war with the United States.

Sales still rose 8.8 per cent in July from the same period a year earlier, according to data released on Tuesday by the National Bureau of Statistics (NBS) – but that is down from the 9 per cent expansion in June and below the 9.1 per cent gain expected by financial analysts.

The latest growth rate was only marginally above the 15-year low of 8.5 per cent set in May.

With incomes rising over the past decade, consumer spending has become a main driving force in the Chinese economy and Beijing is counting on further robust spending to offset the economic impact of the trade war.

But rising consumer debt and concerns over the outlook for incomes have forced some consumers to rein in their spending this year.

The NBS data mirrors the findings of a recent study by the China National Commercial Information Centre, a state-backed consultancy, which suggested that the drop in consumer spending was gathering steam.

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It showed that sales at 50 major Chinese retailers fell by 3.9 per cent in July from a year earlier, accelerating from drops of 3.4 per cent in May and 0.6 per cent in April.

“If the August [retail sales] rate is still negative, a trend would appear to be confirmed,” an analyst at a Hong Kong-based brokerage said.

Zhongtai Securities chief economist Li Xunlei said that consumers were also buying fewer cars and houses, diverting their spending to lower-cost items because of concerns about slowing national economic and income growth.

“It has been hard for car and home sellers to drive further expansion,” Li said. “China needs to increase the supply of services such as entertainment, education, health care and travel to stimulate consumer consumption.”

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According to government data released on Tuesday, car sales fell 2 per cent in July from a year earlier, the third straight monthly drop. Also, growth in home appliance and audiovisual product sales plunged to 0.6 per cent from 14.3 per cent in June.

At the same time, mounting personal debt levels are squeezing Chinese consumers’ ability and willingness to buy other big-ticket items.

The country’s household debt-to-income ratio reached 107 per cent at the end of last year, according to a research report published last week by the Shanghai University of Finance and Economics.

“Given [borrowing from] numerous private lending platforms, which cannot be measured, many Chinese families are already unable to make ends meet – household financial liquidity is at risk,” the report said.

Other economic indicators released by the government on Tuesday indicate that the world’s second-largest economy is cooling more rapidly than previously thought.

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In the first seven months of the year, growth of fixed-income investment slowed to a record low of 5.5 per cent, below analysts’ expectations of 6 per cent, which would have been in line with the January-June growth rate.

From January to July, the growth of infrastructure investment – a major driver of China’s economy over the past decade – slowed too, to 5.7 per cent, down from a rise of 7.3 per cent for the first six months of the year.

The Chinese economy will get worse before getting better, and will take several months to turn around
Ting Lu, chief China economist, Nomura International (Hong Kong)

And industrial production data disappointed, rising 6 per cent in July, matching the 12-month low set in June and missing the market forecast of a 6.3 per cent gain.

“The Chinese economy will get worse before getting better, and will take several months to turn around,” Ting Lu, chief China economist with Nomura International (Hong Kong), said in a note.

“Beijing will step up credit easing and fiscal measures to deliver a recovery and prevent financial troubles such as a rise of bond defaults.”