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Coronavirus pandemic
Opinion
SCMP Editorial
SCMP Editorial

Editorial | Revival of consumer confidence in China rests on key steps

  • If Xi Jinping’s ‘dual circulation’ strategy is to succeed there has to be an effective vaccination campaign against Covid-19, greater certainty about the economic future and an expansion of the private sector

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China’s economy continued its recovery from the pandemic, with third-quarter growth accelerating to 4.9 per cent from 3.2 per cent in the second quarter. Photo: EPA-EFE
SCMP Editorial
China has experienced consumer price index deflation for the first time since 2009. On the face of it, what that says about consumer demand is neither positive for economic recovery from the Covid-19 pandemic, nor for President Xi Jinping’s “dual circulation” strategy, which envisages a greater role for domestic consumption alongside trade in driving future growth. But there is no need to drill down too far in the CPI to see it is too soon to write the consumer off as a driving force. Rather there is a need for greater certainty to unlock consumption potential.
Plummeting pork prices partly drove the fall in the November CPI to minus 0.5 per cent from a year earlier, and from 0.5 per cent growth in October. This followed a rebound in pork supplies as pig farms resumed full production when African swine flu was finally brought under control. There is a risk of further deflation and this is seen by some to cast doubt on the nation’s consumer spending power.

Indeed, a negative CPI reading is often seen as a sign of weak consumer demand and slow economic growth. However, analysts are confident that the CPI reflected higher pork supply, and not faltering consumer demand.

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Overall, China’s economy continued its recovery from the pandemic, with third-quarter growth accelerating to 4.9 per cent from 3.2 per cent in the second quarter. A 2.2 per cent year-on-year decline in the price of food generally led the CPI fall, with pork prices plunging by 12.5 per cent.

Despite the explanation for lower prices last month, CPI deflation is a potential worry simply because Xi’s economic strategy is built on the dual circulation concept. Beijing set a CPI target of about 3.5 per cent for 2020, compared with 3 per cent last year. But between January and November, prices rose only 2.7 per cent from a year ago.

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