Is Chinese Consumer Spending Really Recovering? A Look Behind the Headline Data

October 13, 2022 | Report

Retail sales are showing signs of improvement, with their 5.4 percent y-o-y growth in August having beaten most analysts’ expectations. However, a closer look at the data reveals persistent weakness in consumer spending. Longer-term, China’s consumption growth outlook hinges largely on a shift in its ‘dynamic Zero-COVID’ strategy; and an associated economic, and business and consumer sentiment recovery.

Insights for What’s Ahead

Retail sales are showing signs of improvement, with their 5.4 percent y-o-y growth in August having beaten most analysts’ expectations. However, a closer look at the data reveals persistent weakness in consumer spending. Not only does growth in retail sales remain well below pre-COVID levels, but it is also highly uneven across regions, with first tier cities, critical drivers of overall consumption growth, seeing very little recovery. Consumer confidence, for its part, shows no signs of improving, and this is reflected in households’ increasing propensity to save rather than to spend.

The outlook remains uncertain, both near- and long-term. Although September data could again surprise to the upside given low COVID caseloads during that month, heightened COVID restrictions related to the upcoming 20th National Party Congress (NPC) are likely to put a damper on spending in October, a month which usually benefits from holiday related spending.

Longer-term, China’s consumption growth outlook hinges largely on a shift in its ‘dynamic Zero-COVID’ strategy; and an associated economic, and business and consumer sentiment recovery. A meaningful, long-term relaxation of restrictions, especially in major cities, will be crucial, and could lead to the release of pent-up demand and a robust growth recovery in consumer spending.