China’s slow consumption recovery upset by wary low-income households | The Daily Star
12:00 AM, September 27, 2020 / LAST MODIFIED: 02:11 AM, September 27, 2020

China’s slow consumption recovery upset by wary low-income households

Months after China brought its coronavirus epidemic under control, its consumers are slowly opening their wallets again - but the hard days of lockdowns still weigh on many shellshocked lower-income households, who prefer to hold on to their cash.

While China's recovery here from a record first quarter contraction is well ahead of most other countries, it has been uneven. Lingering weakness in consumption could complicate President Xi Jinping's push to curb the country's dependence on volatile overseas markets.

Factories rebounded relatively quickly from paralysing lockdowns, but consumer confidence has picked up only gradually in the world's second-largest economy.

It took until August before retail sales finally returned to growth, rising 0.5 per cent on-year. Sales for the first eight months were 8.6 per cent lower than the same period last year.

But while spending on luxury goods like Prada bags 1913.HK quickly shook off the virus shock, consumption of daily necessities and services is recovering more slowly. Extra caution from lower-income households is a key reason why, say analysts.

"We live on savings but it's difficult, we tried to buy only the necessities," said Zhou Ran, a self-employed decorator in central Henan's Xinxiang city who couldn't work for four months earlier this year amid lockdowns.

Sales of clothing and shoes remain down 15 per cent over the first eight months, while fuel and other petroleum product sales are down 17.3 per cent. Incomes from food and beverage sales fell over 26 per cent in this period.

Analysts will be closely watching data and company sales reports from China's "Golden Week" holidays on Oct. 1-8 to gauge how quickly consumers' mood is improving.

Though Zhou returned to work in May, business was hard to find. "Many people prefer to keep cash for now so they delay renovations," he said.

"It is difficult for everyone this year," said Zhou, whose wife takes care of their three children and doesn't have an income.

A quarterly report issued jointly by the research arm of Alibaba-backed Ant Group and Southwestern University of Finance and Economics showed the vulnerability of low income families to the epidemic.

Most households with annual incomes below 100,000 yuan ($14,800) reported their wealth declined in the first and second quarters. Those with incomes above 300,000 yuan reported consistent gains.

"Higher-income households have probably built up savings, because of the forced reduction in consumption during lockdown, and could now be ready for a spending spree," said Wei He, an analyst at research firm Gavekal Dragonomics, in a note. "It is lower-income households that face a longer slog of normalizing their finances," he said. data shows that consumption growth in lower-tier cities and low-income groups was weaker than in major cities and high-income groups in June, reversing the usual trend, according to Shen Jianguang, chief economist at JD Digits, the Chinese e-commerce giant's fintech arm.

This is likely because the small and medium-sized enterprises which employ many lower-income people were affected more by the epidemic, Shen said in an article published August.

The impact on consumption could be considerable. Some 600 million Chinese people earn a monthly income of barely 1,000 yuan, according to Premier Li Keqiang, speaking in May. That would be over 40 per cent of the country's population.

Beijing has issued a slew of policies to stabilize jobs and support spending over the last months. Local authorities and companies have, for instance, handed out billions of yuan in shopping vouchers.

To be sure, China's recovery, as imbalanced as it is, is still a bright spot in global consumption as other major economies battle a second wave of infections and in some cases impose fresh curbs on activity.

Many in China's vast export-oriented sector have turned to the domestic market as foreign orders dry up, with enthusiastic government support.

An app from Alibaba Holding Group Ltd which helps manufacturing suppliers sell directly to domestic consumers has seen 1.2 million companies sign up since its launch in March. Nearly half were export-focused previously, according to an Alibaba spokesperson.

Domestic orders now make up 40 per cent of total orders for Tu Xinye, the manager of a company that makes toothbrushes in southern Jiangsu province.

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