Could China’s stock market rally, direct subsidies help boost sluggish consumer spending?

China’s overall economy grew by 3.2 per cent in the second quarter of 2020, bouncing back from a 6.8 per cent contraction in the first three months of the year

But total per capita disposable income dropped 1.3 per cent from a year earlier, while real per capita consumer spending fell 9.3 per cent in the first six months

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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. Photo: Reuters

Published: 6:46pm, 17 Jul 2020Updated: 6:46pm, 17 Jul 2020

While trade and investment helped China’s economy return to positive growth in the second quarter, weak income expansion and job worries are still holding back households from spending, with no improvement in sight.

In the first half of the year, total per capita disposable income dropped 1.3 per cent from a year earlier after adjusting for inflation, while the income loss for urban residents was higher at 2 per cent, according to official data.

Breakdowns of income sources showed that net business income – the majority from the self-employed business owners who run small shops – dropped by 5 per cent in nominal terms, while salaries grew only 2.5 per cent.

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 contrast, China’s overall economy grew by 3.2 per cent in the second quarter of 2020, bouncing back from a 6.8 per cent contraction in the first three months of the year.

This week, in a move to support two major offline consumption sectors that have struggled during the coronavirus, China allowed travel agents to resume some cross-province group tours and cinemas in low-risk areas will reopen next week.

But boosting the recovery of consumption must include fixing the weak labour market, where one in five college and university graduates could not find jobs in June and the number of newly employed was 1.73 million lower in the first half of the year compared to a year earlier.