China Consumption Monthly Roundup

China Consumption Monthly Roundup | September 2024

26 September 2024 / Report

Growth in retail sales slowed to 2.1% y-o-y in August, down from 2.7% in July.

Sales of new energy vehicles (NEVs) surpassed sales of traditional cars for the second consecutive month due to strong policy support.

Growth in retail sales slowed to 2.1% y-o-y in August, down from 2.7% in July.

This is due to a less favorable comparison base the same period last year; declines in sales of discretionary goods (e.g.: gold, cars, and cosmetics) and property related goods (e.g.: construction and decoration materials, and furniture); and the continued normalization of retail sales of services.

Sales of new energy vehicles (NEVs) surpassed sales of traditional cars for the second consecutive month due to strong policy support.

NEV sales continued growing robustly in August driven by government support and low prices, reaching 53.9% of total car sales that month. Internal combustion engine (ICE) car sales, in comparison, continued contracting.
In August, the government doubled auto trade-in subsidies from RMB 10,000 to RMB 20,000 for NEVs, and from RMB 7,000 to RMB 15,000 for traditional cars. We expect this to help drive car sales for the rest of the year, especially for NEVs given the higher subsidy they are benefiting from. In addition, the traditional peak season in September and October will see more price promotions and new car model launches, which will also support sales.

The property sector continued to contract despite government support.

While the declines of some key property indicators have narrowed and stabilized at low levels in recent months, we think it is still too early to take this as a signal that the property sector is close to bottoming out from its ongoing downturn. The persistent weakness in consumer confidence and high levels of inventory (unsold residential floor space reached 381 million square meters in August 2024, about 170% higher than the level at the end of 2019) will continue posing downside risks to the sector.
Since May, the government has intensified support for the property sector, but with little effect so far. In September, authorities announced a nationwide reduction of interest rates on existing mortgages, which would reduce rates by 50 basis points on average. According to the governor of China’s central bank (PBOC; People’s Bank of China), the cut would potentially save home buyers about 150 billion yuan (USD 21 billion) per year. In addition, the authorities lowered the minimum downpayment for second homes (from 25% to 15%). While the impact of the recent support measures on the property sector is certainly positive, it is also likely to be limited given the negative impact that a weak labor market and slowing income growth is having on households’ willingness to take on debt.

The labor market remains under pressure.

China's headline unemployment rate continued to rise for the second consecutive month in August. This was driven by rising youth unemployment, which reached its highest level since the NBS revised its statistical methodology last December. Purchasing Managers’ Index (PMI) employment subindices remained in contractionary territory, indicating weak hiring intentions.

Looking ahead, we expect consumption growth to remain moderate.

We believe Chinese consumers will remain risk-averse and price-sensitive as long as the underlying factors dampening confidence levels are not addressed. Chief among these is the downturn in the property sector and the resulting decrease in consumer wealth levels. Other factors include labor market weakness and slower income growth as well as structural imbalances that drive the need for precautionary savings, e.g. the lack of a robust social safety net. This said, we do expect to see short-lived periods of pent-up demand releases during holidays and shopping festivals.
In late July, authorities earmarked RMB300 billion (USD 41 billion) of ultra-long special treasury bonds to finance the equipment upgrading and consumer trade-in programs. Local governments have since followed suit with detailed trade-in policies. Consumers can receive up to RMB 2,000 in subsidies for white goods, mobile phones, furniture and home renovation (the applicable goods vary at city levels). The trade-in programs are expected to support sales of goods in the short-term, but it is unlikely to have a substantial or lasting effect on consumption for the reasons stated above.