Sophie Yu, Kevin Yao

BEIJING (Reuters – China’s sputtering economies has a lot riding. These consumers are only now emerging from the lockdowns in Shanghai, and other large cities. Wu Lei is a Beijing soccer coach who put off purchasing a new phone because of his hopes.

Wu, a 37 year-old mother to two daughters said she had lost the “lion’s” of her income due to Beijing’s April call for an end in after-school sport clubs. On Monday, the Chinese capital was restored to normal after a five-week-long shutdown due to China’s strict COVID-19 regulations.

He stated that he had no money left over in the normal month, and now he feels really stressed.

China wants to stimulate spending, which was affected by COVID curbs in its most populous cities. But, pieces like vouchers and subsidies for car purchasers as well as digital yuan payment have been small compared to other large global economies. Instead, policymakers have stuck with their preferred stimulus approach that focuses on infrastructure and businesses.

Analysts believe that these measures will not drive consumer spending recovery, which was responsible for over two-thirds the first quarter growth in China’s economy. China is attempting to rebalance away from its heavy dependency on investments and exports. It will also hinder recovery in China’s second largest economy. This is crucial for global growth.

Mark Tanner is the managing director of China Skinny, a Shanghai-based research agency and marketing company.

He said that the lack of confidence they have in their country is partly due to uncertainty surrounding the transmissible Omicron, as well as the fact they don’t feel as confident relative to other nations.

Analysts said that not only are income losses from the lockdowns limiting the recovery, but also persistent fears over job security and COVID curbs as well as the reticence of authorities towards policies which would quickly get more money into consumers’ hands.

China’s retail sales declined 11.1% by April compared to a year before, marking the worst fall in China’s retail sales since China’s COVID crisis two years ago.

Although Gucci and Louis Vuitton were able to rebound, wider consumer consumption was not as strong. For 2020, retail sales declined 3.9% compared to the year before. It was the first contraction in the history of the industry since 1968.

However, the global economy expanded 2.2% in 2020. It bounced back from a slump record in the quarter before and made China the largest world economy to grow.

Analysts said that the situation is more complicated this time. China’s tech and property sectors, once highly-flying in China are now struggling. The persistent job stress has also impacted the “revenge consume” which is what happens when there are less lockdowns and people return to shops with vengeance.

China’s urban unemployment rate rose to 6.1% last April. This is the highest level since February 2020, and far above the 5.5% government target. Economists predict that unemployment will rise before it improves. Graduates are entering the workforce in unprecedented numbers.

FEAR OF LOCKDOWNS

New lockdowns are also possible, especially Shanghai where certain of the tree-lined, upscale neighbourhoods in the French Concession were fenced in this weekend. Residents were then taken away from the area after the discovery of COVIDs.

Shenzhen residents were subject to a seven-day lockdown. Residents must undergo a test every 72 hours in order to be able use taxis, subways, and malls. Since the implementation of this system, restaurants and hairdressers have seen a drop in their customers. Similar regulations apply in Shanghai and Beijing.

However, Chinese authorities have been reluctant in encouraging consumption through cash handouts comparable to those offered by developed countries.

These people are faced with fiscal limitations and they fear handouts might favor China’s most wealthy regions. This is at a moment when China has promised to tackle economic inequality. The authorities are also concerned that the cash government gives to China’s usually thrifty customers could end up in savings rather than being spent.

China’s cabinet instead has revealed a set of policies to support COVID-hit companies and encourage investment. However, there are very few steps that will promote the purchase of home appliances and cars.

Shenzhen has allocated 500m yuan (75 million dollars) in consumption vouchers to Shenzhen and 100 millionyuan subsidies for consumer electronics. Together, these amounts amount to approximately $5 per resident.

Residents who choose to switch to electric vehicles in Shanghai will be eligible for subsidies worth 10,000 Yuan. Its measures to restart an economy that was damaged by the two-month lockdown focused mainly on businesses.

This support to consumers who are being hard hit by the pandemic dwarfs the $3,200 worth of stimulus checks that millions of Americans have received since the beginning 2020.

Zhang Yiping, an economist with China Merchants Securities, Shenzhen, stated that “the authorities are rolling out strategies to stimulate consumption but it would not be difficult to see a sharp rebound.”

People’s incomes have declined and employment is under severe pressure.

Economics and policy experts are having heated discussions about the need to provide more stimulus for China’s consumers due to its current consumption slump.

Lin Yifu (a Peking University professor who was also the former chief economist at World Bank) recommends giving 1000 yuan families located in lockdown areas. Yao Yang, his colleague, suggests that China gives 1,000 Yuan each resident. This should be in the form of digital currency.

Policy insiders claimed that Chinese policymakers do not seem to be willing to compromise their preference for supporting infrastructure projects and businesses.

We should be focusing on increasing effective investment. “Without investment, consumption is likely to falter quickly,” Jia Kang (ex-head of the think tank for the Finance Ministry), who runs the China Academy of New Supply-side Economics told Reuters.