Getting people to spend money
Hangzhou was the location for the Element Fresh chain. It entered bankruptcy liquidation in December 2021 after the coronavirus pandemic.
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BEIJING — Sluggish consumer spending has dragged down China’s economy since the pandemic, with little relief in sight for 2022.
Economists in China are concerned most about consumption, along with the real estate market. The sector with the highest consumer spending is also one of the most important. businesses and investors have bet on as they expect China’s middle classSpending power expected to increase in the next few years
At an economic planning meeting held this month, top Beijing leaders warned that the future of growth is uncertain “triple pressure” from shrinking demand, supply shocks and weakening expectations.
Wang Jun (chief economist at Zhongyuan Bank), stated in Mandarin that “the core problem of these triple pressures is still a weakening or insufficient demand.” This statement was translated from CNBC. Expectations will rise if demand increases.”
He said that the main reason economic growth cannot continue is due to the decline in demand. This was mainly because of the adverse impact of the pandemic upon people’s incomes. Reduced spending by local governments on infrastructure projects also has a negative impact on demand. regulation on after-school tutoring businesses that have affected employment.
He said that the supply shocks are the third type of pressure. They were caused by the pandemic, overly severe measures taken to decrease carbon emissions and the second is the threat from the third, called “supply shocks”. Global supply chain disruptions have been caused by virus-related restrictions on returning-to-work, which include a shortage in critical components like semiconductors.
People’s ability to afford more is affected by uncertainty around income and jobs. Beijing crackdown on the debt-based real estate developers has a negative impact on household wealth perceptions, since most are tied to their property.
Jianguang Shen (chief economist, Chinese ecommerce firm JD.com), stated that “how consumption recovers next years will have a very large impact on the economy.” This statement was translated by CNBC from Mandarin.
Shen suggested that authorities might increase consumption. following Hong Kong’s example in offering vouchers.The incentive would be to increase consumer spending at specific hotels.
The retail sales in Hong Kong were down by 5% and 6% respectively, after protests shook the economy. the pandemic shut off the semi-autonomous region from foreign and mainland tourists.The latest voucher program was launched by local authorities in August. Retail sales through October for 2020 are up 8.45%
Mainland China retail sales dropped last yearDespite the overall economy improving, this is still a significant decline in retail sales. That decline was a factor in retail sales’ surge during the first quarter. However, the rate has slowed significantly since the summer. Still, retail sales rose 13.7% in the first 11 months of this year compared with the same period in 2020.
According to Goldman Sachs analyst estimates, the sector-based increase in consumer spending has led to a shift towards food and clothing rather than entertainment and education. The analysts expect the gap between services and goods to shrink slightly in next year.
The analysts stated that even with projections of 7% real household consumption growth next year, the trend would “remain below its pre-Covid trend at the end 2022.” The analysts pointed out the drags that were China’s “zero tolerance” policy for controlling CovidThe downturn in property sectors.
China is expected to see a 4.8% increase in GDP next year. This compares with 7.8% last year.
China’s vast property market has its problems caught global investors’ attentionAs indebted builders like Evergrande teetered on the edge of default, prompting contagion fears. Government attempts to control the high industry debt levels and surge in home prices have led to tighter financing conditions for developers — and falling sales and prices.
Larry Hu, Macquarie’s chief China economist and Chief Macquarie economist said that property is “the greatest growth headwind” in 2022. After rising 4.8% in 2018, he expects that housing starts will fall even more and that floor space sales will slow down. Property investment is expected to decline by 2%.
Hu stated that property policy needs to shift to more loosening in the next year. He also said they expect policymakers will defend GDP growth of 5%. They might not react quickly enough given their hesitation in using property to stimulate the economy.
China’s high-level economic planning meeting in China this month didn’t signal any significant changes to its real estate policy. Beijing has maintained that houses are meant to be lived in and not used for speculation.
Wang of Zhongyuan Bank said that it will take several years for the problems in real estate to be resolved. Wang said that the central government would need to continue to borrow money and invest more in order to support local governments.
Moody’s estimates that at least 20% of regional and local government revenue comes from land sales to developers.
Policymakers face the challenge of reducing real estate-related loans while maintaining a stable property market.
The weak market sentiment also affects residential property sales as buyers delay buying in anticipation of further price drops. Fitch said in a report last week.Five of the 40 rating agencies could see a decrease in home sales next year by 15%.
Fitch stated that a decrease in real estate construction activity will ripple through other sectors like steel, iron ore, and coking coal. This could decelerate fixed-asset investment and put financial institutions under strain.
Beijing has stressed stability as its priority in economic policy for the coming year. The authorities have made it abundantly clear in this year’s declarations that quality of growth is increasingly more important than quantity.
Columbia University Earth Institute, China Center for International Economic Exchanges, and Ali Research Institute attempted to assess such progress using a national sustainability development index. The index includes factors other than GDP. It also incorporates revenue from high-tech businesses and expenditure on education and treatment of pollution.
According to this month’s latest release, the index rose from 59 to 82.1 in 2015.