Chinese consumers move towards forefront of economic recovery

For Cai Yuanhao, a Beijing-based courier, the world’s busiest shopping event is a slog. This year, despite the pandemic, it was busier than ever.

“There were too many packages to fit in my cart,” he said, pointing to the three-wheeled vehicle he uses to zip between Beijing neighbourhoods. From early November, Mr Cai worked from 6am to 9pm, delivering hundreds of items daily in the build-up to “Singles’ Day” on November 11.

The event, which originated as a way for single Chinese to console themselves through shopping, has become an annual splurge that reflects the country’s rising wealth and its rapid shift to online spending.

This year, as China continues to shake off the impact of coronavirus, it also offered a glimpse into the role consumption has played in the wider economic recovery. Some economists maintain that households will soon be ready for a more sustained rush to spend after months of caution.

From the evidence of Singles’ Day alone, appetite is already strong at a time of rising online activity. Alibaba, the country’s leading ecommerce platform, extended the event to an 11-day marathon and said shoppers in the country placed Rmb498.2bn ($75.8bn) worth of orders, up 26 per cent from the same period last year.

24% Increase in year-on-year online retail sales in October

More broadly, growth in retail sales this year lagged behind industrial production — the standout driver of a world-leading recovery from coronavirus in China.

But the most recent data suggest consumption is beginning to close the gap. Official figures released in mid-November showed retail sales rose 4.3 per cent in October, compared with a 6.9 per cent rise for industrial growth. Catering sales, which are sensitive to coronavirus restrictions, also turned positive for the first time this year, adding 0.8 per cent. 

In a recent report, Morgan Stanley forecast that private consumption would replace exports and infrastructure investment as the main catalyst for growth in China next year, with gross domestic product rising 9 per cent.

“You have a lot of excess saving by Chinese consumers for this year,” said Robin Xing, chief China economist at Morgan Stanley. “We expect this excess saving will be partly released in 2021 as consumer confidence likely improves.”

Morgan Stanley pointed out that savings in the first three quarters of this year reached 37 per cent of disposable income, notably above previous years. In 2019, the rate was 32 per cent.

Goldman Sachs economists expect consumption to “take over the baton and become the main growth driver in 2021”, estimating that household consumption would increase 13 per cent in 2021, compared with a 4 per cent fall in 2020. 

In addition to a lower household savings rate, they suggested the labour market would continue to recover, with few signs of a “scarring effect”. Unemployment in urban areas was 5.3 per cent in October, compared with 5.2 per cent at the end of last year.

Uncertainty, however, persists. Xiaohan Lin, a 37-year-old bus driver in Fushun, a city in north-east China, planned to spend Rmb100,000 on a car this year but ended up spending 20 per cent less. “I need to prepare for the future under the current economic situation,” he said.

After his shifts were cut by 15 per cent, Mr Xiaohan took on an additional job at a mine to supplement his income.

Consumer behaviour across sectors is unbalanced, linked in part to the lingering impact of the virus even as cases remain low. Jingyang Chen, Greater China economist at HSBC, noted that some service sectors, such as tourism, had not yet fully recovered based on the latest data. She also noted that growth in retail sales was still half its level before the pandemic.

By contrast, online retail sales boomed 24 per cent year on year in October.

Car sales, nonetheless, paint a picture of improved offline demand, rising 12.5 per cent year on year in October. They also offer an insight into the support a recovering China can offer to global corporations. German carmaker BMW this month posted its best sales figures in history, stoked by sales in China that rose almost a third year on year in the third quarter. 

A full recovery of spending would support a longer-term strategy in China, where the government’s new five-year plan aims to emphasise domestic consumption. Morgan Stanley expects Chinese per capita income to exceed $14,000 by 2025, which Mr Xing said would be “crossing the threshold for high income status”. 

Foreign direct investment in China has recently increased, particularly in fields such as ecommerce and logistics that target the Chinese consumer.

“We will see continued upgrading of consumer demand,” said Mr Xing. “China is using the domestic market potential as the mainstay to open to foreign firms, giving them wider access to the local market.”

Additional reporting by Xinning Liu and Wang Xueqiao

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