China's money problem: Consumers aren't spending enough
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Illustration: Annelise Capossela/Axios
China's consumers have plenty of money. The problem is they're not spending enough of it.
Why it matters: In the U.S., higher savings rates are often viewed as a sign of healthy consumers. In China, they're a reminder of lackluster demand constraining growth.
China has long had one of the highest saving rates in the world — a reflection of the country's weak safety net.
- What's different now is depressed sentiment. For years, the property sector helped boost growth, and now it's cratering — bringing household wealth down with it.
Zoom out: China's strong household savings are helping fund the government's subsidies for the manufacturing sector that's drawing pushback from global competitors, including the U.S.
By the numbers: Production in China's factories is strong, but demand for the nation's production is weak. Even the government acknowledges that domestic demand remains "insufficient."
- In June, China retail sales rose just 2% from a year ago.
- Two other signs of weak demand: Prices are barely rising, and imports keep falling, even as exports soar.
Follow the money: Household income growth is outpacing that of spending. Disposable income per capita rose 5.4% in the first half of the year, compared to the same period a year ago.
The big picture: China's economy grew 4.7% last quarter from the same period a year ago.
- Manufacturing is the engine, much to the ire of a growing number of nations that assert China is producing more than its economy can absorb. Factory output rose more than 5% from a year ago, only slightly lower than that seen in May.
What's next: Chinese officials are meeting for the third plenum this week. The meetings, held once every five years, focus on long-term reforms.
- They have previously wrapped up with significant economic policy shifts — including the easing of the one-child policy in 2013.
What they're saying: "What China needs is more efforts to boost consumer spending and stop consumers saving so much," Shane Oliver, an economist at AMP, wrote in a note.
- The economic data, Oliver adds, "increases the pressure on the third plenum to announce more decisive stimulus measures."
