Amidst the ongoing property crisis in China, the state of the Chinese consumer has become a critical concern. Despite long-standing discussions about shifting the economy's focus towards consumer spending, the country has struggled to make this transition. The International Monetary Fund has also advocated for this shift, emphasizing the importance of boosting consumer activity.
A recent survey conducted by the People's Bank of China revealed a significant decline in consumer optimism. The survey indicated that 15% of Chinese households experienced a drop in income, with a larger proportion anticipating future income reductions. Additionally, job insecurity was a prevalent concern, with 43% of respondents expressing doubts about their employment prospects.
The survey also highlighted a shift in consumer behavior, with 60% of households prioritizing saving over consumption. This change is reflected in the increased bank deposits, particularly in longer-term, higher-yield accounts. Notably, Chinese households have been paying down mortgages faster than taking out new loans, leading to a decrease in outstanding mortgage values.
The property crisis has significantly impacted consumer sentiment, as the collapse of major developers has created financial instability and reduced support for business expansion. Many families who pre-purchased homes from now-defunct developers are facing uncertainties, leading to a decline in property purchases and construction activity.
Furthermore, the legacy of past borrowing practices and the impact of zero-Covid policies have exacerbated the challenges faced by Chinese consumers. The arbitrary closures and lockdowns during the pandemic have heightened income insecurities among middle- and low-income individuals, further dampening consumer spending.
Addressing the property crisis and restoring consumer confidence will require substantial efforts and time. While income insecurities may improve in the near future, the long-term effects of the crisis and debt overhang will continue to weigh on consumer sentiment. China faces a challenging path to recovery, with the burden falling heavily on the shoulders of the Chinese consumer.
