Consumption in China slumped in July for the seventh consecutive month, as a reluctance among households to spend on goods and services casts doubts over the country’s economic recovery. Retail sales dropped 1.1 percent n July compared with the same month a year earlier. Economists polled by Reuters had forecast that overall consumption would edge higher for the first time this year. Spending habits in China are being closely watched as the country stages one of the world’s earliest recoveries from the economic fallout caused by the coronavirus pandemic.
In April, China lifted lockdown measures on Wuhan, the city where the virus was first identified, as other countries were moving into full crisis mode. But a gradual easing of restrictions and low numbers of new infections have so far failed to propel overall consumption back into positive territory year on year. “It’s quite indicative for other economies which are reopening the economy much later than China,” said Qu Hongbin, co-head of Asia economic research at HSBC. “Clearly it probably takes much longer … than most people expect to see a recovery in consumption.”
Official data released on Friday showed China’s uneven economic recovery, with the government-backed industrial sector pushing growth higher despite the weakness in spending. Industrial output in China rose 4.8 percent in July compared with the same period last year. Local governments have supported a wave of new infrastructure projects, increasing demand for commodities and boosting steel production.
“The rebound has been highly uneven,” Mr Qu said.”Supply-side production has been rebounding faster than the demand side”.
China expands coal plant capacity to boost post-virus economy Data from the People’s Bank of China suggest that household savings have risen substantially in China this year. Total household deposits edged down slightly in July from Rmb90.3tn ($13tn) in June but remained at elevated levels compared with less than Rmb82tn in December last year. Economists said the risk of further outbreaks of the virus was suppressing consumer sentiment in the country. Bruce Pang at China Renaissance Securities said uncertainty over employment prospects was also behind caution in consumer behaviour. He said he expected the government could soon unleash further measures to support the economy.