At the same time, real per capita consumer spending fell 9.3 per cent in the first six months from a year earlier to 9,718 yuan (US$1,389). Apart from food, drink and rent, all other types of consumption declined.

In light of all the obstacles faced by the economy, some economists have renewed calls for direct subsidies to be provided to consumers to boost consumption.

Yao Yang, dean of National School of Development at Peking University, said cash subsidies were still necessary for low-income people who continue to suffer from the depressed job market.

Gan Li, a professor of economics at Texas A&M University, argued that Beijing should loosen some regulations on consumer loans to young households who have traditionally spent more of their income than the national average but who have found it difficult to obtain credit.

However, Xu Jianwei, senior China economist at investment bank Natixis, warned short-term, one-off subsidies might only result in higher savings rather than spending unless it became clear the programme would continue over the long-term.

“The key to help consumption is whether many offline services could resume after the pandemic is controlled,” Xu said.

Officials could have also been dissuaded from handing out one-off cash subsidies during the recent buoyant stock market given worries that the money could be invested rather than spent to support the real economy, according to Michelle Lam, China economist from French bank Societe Generale.

Talks have heated up over the potential wealth effect from the recent boom in Chinese stocks that started at the end of June.

Both the Shanghai and Shenzhen composite indices had risen 12 per cent and 32 per cent this year before falling by 7 per cent and 8 per cent respectively this week.

A 2019 study led by Harvard University that looked at the wealth effect of the stock market in the United States on consumption found that for every US dollar of increased stock market wealth, consumer spending rose by 3.2 cents per year.

But unlike in the US where stocks are mainly traded by professional investors, China’s stock market is dominated by individual, non-professionals, known as retail investors.

China’s households contribute more than 80 per cent of trading volume, compared to 11 per cent from institutions.

Research based on the Chinese stock markets’ boom and bust periods from 2014-15 showed that large changes in stock prices exacerbated inequality between the rich and the poor and did little to boost spending.

Last year, four Chinese researchers led by Li An from Tsinghua University studied data from the Shanghai Stock Exchange that included trading records of 60 million investor accounts over a period of 18 months from July 2014 to the end of 2015. During the study, the Shanghai Composite Index climbed more than 150 per cent until June 2015 before crashing 40 per cent.

They found that the bottom 85 per cent of households – in terms of their total holdings in their accounts – lost 250 billion yuan (US$35.7 billion) over the 18 months, while the top 0.5 per cent gained 254 billion yuan. The wealth distribution difference was in part due to skills of the investors, the authors concluded.

“It is often believed that greater stock market participation (or participation in any other risky financial market) is a path to prosperity and equality, especially in developing countries where financial literacy and market participation are generally low,” the authors wrote.

“However, if the poor, less financially sophisticated invest actively in financial markets that are prone to bubbles and crashes, such participation can be detrimental to their wealth.”

Societe Generale’s Lam added that the help from the positive wealth effect from rising stock prices was likely to be limited, given that it only represented 10 per cent to 15 per cent of household financial assets.

“The major source of household wealth is housing, so for policymakers maintaining stable house price growth is also key to support consumption,” Lam said.