Economic woes pile up against Chinese consumers
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Aïda Amer/Axios
Chinese consumers haven't unleashed the kind of spending that many multinational companies had hoped for following the easing of COVID restrictions.
Why it matters: Economists have worried that "scarring effects" from lockdowns and job losses would take time to heal.
The latest: While the market is "really picking up," it's not been at the speed that "everybody had hoped for," L'Oréal CEO Nicolas Hieronimus told Reuters last month.
- The company's competitor, Estée Lauder, noted a similar observation about pace last week when describing its China business.
- Meanwhile, the country's biggest online platforms — Alibaba, JD.com, TikTok's China equivalent Douyin — have been focused on selling low-price goods this year as consumers are also belt tightening.
Flashback: That's a far cry from where hopes were at the end of last year — that as lockdowns ended, Chinese consumers would resume travel and spend feverishly and en masse in 2023.
- Households had accumulated about $827 billion in excess savings since the pandemic began. And investors were eager to see where that cash would flow.
Reality check: But in the six months since Beijing loosened COVID restrictions, financial snapshots of hundreds of millions of families have become discordant.
Zoom in: Confidence levels among Chinese consumers have taken a hit as real estate sales have fallen about 50% below their peak levels three years ago, according to Bloomberg.
- For context, China's real estate market accounts for as much as 70% of household wealth and 40% of collateral held by banks.
- One of China's biggest property developers, Country Garden, is now also on the brink of default, and experts fear that its troubles could spread.
- And China Evergrande Group's bankruptcy protection filing last week has only added to growing anxieties.
What they're saying: "The ongoing housing correction, high youth unemployment, and a price war over electric cars [are all fueling] poor consumer and business expectations," Erin Baggott Carter, a political science professor at the University of Southern California, tells Axios in an email.
- "Higher domestic consumption is important for healthy, long-term economic growth, but encouraging it may require major — and therefore untenable — political changes."
What to watch: China is experiencing an "expectations recession," Bert Hofman, former China country director at the World Bank, told Bloomberg.
- "Once everybody believes that growth will be slower going forward, this will be self-fulfilling."
- Barclays, JPMorgan, Citi and Goldman Sachs are among investment firms that have cut their forecasts for China's economic growth, sometimes continually.
Go deeper: What China's slump means for the world
