As the world looks to Chinese shoppers to help boost the global economy, consumer spending as a proportion of GDP continues to decline
Bloomberg in Beijing 20 June 2011
At the Haiyang Zhuangshi hardware store in Beijing, sales of paint and aluminium window frames are slowing, one sign of a diminished role for consumer spending on the mainland that is foiling government objectives.
“It seems the peak days are gone,” said owner Hu Mengbin, 42, whose daily revenue has dropped to about 3,000 yuan (HK$3,608) from as much as 4,000 yuan last year after Beijing stepped up efforts to rein in home prices. “Between 2006 and 2008 when the property market was red hot, we could make quick money.”
Hu’s loss underlines the dilemma for Premier Wen Jiabao: his campaign to control inflation is undermining attempts to make consumers a bigger driver of the world’s second-largest economy. Failure to lessen dependence on exports and investment spending leaves the nation more vulnerable to swings in external demand and subject to asset booms and busts.
Government data last week showed retail sales growth slowed to 16.9 per cent in May, less than the average of the past five years despite soaring food prices. Spending on fixed assets such as factories and property climbed 26 per cent, excluding rural households, in the first five months, the fastest in almost a year.
“Consumption hasn’t taken off,” said Patrick Chovanec, an associate professor at Tsinghua University’s school of economics and management. “What has happened is a shift from exports to investment as a driver of growth.”
Analysts at Capital Economics estimate that private consumption may have fallen to 34 per cent of gross domestic product last year, the lowest level since Beijing began opening the economy to market mechanisms more than three decades ago. Just 10 years ago, the share was 46 per cent, Capital Economics calculates.
“Just at a time when the government in China and a lot of people elsewhere are hoping to see Chinese consumers step up to the plate, actually they’ve been staying away from shops,” said Mark Williams, an economist in London with Capital Economics and a former adviser on China to the UK Treasury. “The trend over the past couple of years has been relentlessly downward.”
Food costs jumped 12 per cent in May from a year before, eroding the purchasing power of households even as policymakers embrace wage gains to bolster domestic demand. Savings are also being hurt, with the one-year deposit rate of 3.25 per cent more than 2 percentage points less than the 5.5 per cent annual pace of inflation. Limited exchange-rate appreciation also means imported products are more costly.
Property prices are also a burden, with 74 per cent of people seeing them as too high, according to a People’s Bank of China survey released yesterday. Even after interest-rate increases and curbs on second and third mortgages, home prices rose for the ninth straight month in May, according to data from SouFun Holdings. Worker discontent has deepened, contributing to riots and demonstrations in some regions.
The Shanghai Composite Index has dropped 13 per cent from this year’s April high on concern stepped up efforts to cool inflation, near a three-year high, will hurt earnings.
Mainland leaders have vowed to boost consumption’s share of GDP since at least 2006, so far to no avail. The ratio is half that of the US, and 60 per cent of Europe and Japan, according to Credit Agricole CIB.
With the US government and lawmakers claiming that China’s limits on appreciation of its currency give its exporters an unfair advantage, Chinese officials have also repeatedly forecast that the nation’s trade surplus will shrink. Even so, the surplus reached US$13 billion in May, the highest level this year.
Growth driven by exports leaves China vulnerable to external slowdowns, while expansion driven by investment is less likely to improve living standards, said Li Wei, an economist with Standard Chartered in Shanghai. The risk is pertinent now after the US unemployment rate climbed back above 9 per cent and as the euro region faces renewed investor unease about debt. While China unleashed a record fiscal stimulus and credit expansion in 2008, now its flexibility is restricted by inflation.
Rising wages may yet spur a pickup in consumer spending. The pay of migrant workers jumped 40 per cent in 2010 and will climb 20 to 30 per cent annually in the next three years as Beijing endorses income gains to strengthen demand, according to Credit Suisse. The central government has also increased spending on health and pensions and aims to build 36 million low-cost houses by 2015.
“It’s a good plan but up to now we do not see a lot happening and growth is still driven by investment,” said Shuang Ding, an economist with Citigroup in Hong Kong. “There’s no turning point so far.”
Growth in furniture sales eased to 26 per cent in May from 37 per cent a year earlier, while household electronics sales rose 15 per cent after gaining 27 per cent, official data shows. Car sales fell for the first time in more than two years in May after subsidies ended this year, supply chains were disrupted by the Japanese earthquake, and the property clampdown helped to depress demand.
Consumption would have to grow three percentage points faster than GDP to reach 40 per cent of the economy within five years, according to Michael Pettis, a finance professor at Peking University.
“We would need the highest consumption growth ever recorded,” Pettis said. “In the short term we’re not going to see a lot of change.”
Hu isn’t expecting any quick turnaround either. “Making money is getting harder this year,” he said. “Business is slack.”
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Still no sign of a consumer boom
As the world looks to Chinese shoppers to help boost the global economy, consumer spending as a proportion of GDP continues to decline
Bloomberg in Beijing
20 June 2011
At the Haiyang Zhuangshi hardware store in Beijing, sales of paint and aluminium window frames are slowing, one sign of a diminished role for consumer spending on the mainland that is foiling government objectives.
“It seems the peak days are gone,” said owner Hu Mengbin, 42, whose daily revenue has dropped to about 3,000 yuan (HK$3,608) from as much as 4,000 yuan last year after Beijing stepped up efforts to rein in home prices. “Between 2006 and 2008 when the property market was red hot, we could make quick money.”
Hu’s loss underlines the dilemma for Premier Wen Jiabao: his campaign to control inflation is undermining attempts to make consumers a bigger driver of the world’s second-largest economy. Failure to lessen dependence on exports and investment spending leaves the nation more vulnerable to swings in external demand and subject to asset booms and busts.
Government data last week showed retail sales growth slowed to 16.9 per cent in May, less than the average of the past five years despite soaring food prices. Spending on fixed assets such as factories and property climbed 26 per cent, excluding rural households, in the first five months, the fastest in almost a year.
“Consumption hasn’t taken off,” said Patrick Chovanec, an associate professor at Tsinghua University’s school of economics and management. “What has happened is a shift from exports to investment as a driver of growth.”
Analysts at Capital Economics estimate that private consumption may have fallen to 34 per cent of gross domestic product last year, the lowest level since Beijing began opening the economy to market mechanisms more than three decades ago. Just 10 years ago, the share was 46 per cent, Capital Economics calculates.
“Just at a time when the government in China and a lot of people elsewhere are hoping to see Chinese consumers step up to the plate, actually they’ve been staying away from shops,” said Mark Williams, an economist in London with Capital Economics and a former adviser on China to the UK Treasury. “The trend over the past couple of years has been relentlessly downward.”
Food costs jumped 12 per cent in May from a year before, eroding the purchasing power of households even as policymakers embrace wage gains to bolster domestic demand. Savings are also being hurt, with the one-year deposit rate of 3.25 per cent more than 2 percentage points less than the 5.5 per cent annual pace of inflation. Limited exchange-rate appreciation also means imported products are more costly.
Property prices are also a burden, with 74 per cent of people seeing them as too high, according to a People’s Bank of China survey released yesterday. Even after interest-rate increases and curbs on second and third mortgages, home prices rose for the ninth straight month in May, according to data from SouFun Holdings. Worker discontent has deepened, contributing to riots and demonstrations in some regions.
The Shanghai Composite Index has dropped 13 per cent from this year’s April high on concern stepped up efforts to cool inflation, near a three-year high, will hurt earnings.
Mainland leaders have vowed to boost consumption’s share of GDP since at least 2006, so far to no avail. The ratio is half that of the US, and 60 per cent of Europe and Japan, according to Credit Agricole CIB.
With the US government and lawmakers claiming that China’s limits on appreciation of its currency give its exporters an unfair advantage, Chinese officials have also repeatedly forecast that the nation’s trade surplus will shrink. Even so, the surplus reached US$13 billion in May, the highest level this year.
Growth driven by exports leaves China vulnerable to external slowdowns, while expansion driven by investment is less likely to improve living standards, said Li Wei, an economist with Standard Chartered in Shanghai. The risk is pertinent now after the US unemployment rate climbed back above 9 per cent and as the euro region faces renewed investor unease about debt. While China unleashed a record fiscal stimulus and credit expansion in 2008, now its flexibility is restricted by inflation.
Rising wages may yet spur a pickup in consumer spending. The pay of migrant workers jumped 40 per cent in 2010 and will climb 20 to 30 per cent annually in the next three years as Beijing endorses income gains to strengthen demand, according to Credit Suisse. The central government has also increased spending on health and pensions and aims to build 36 million low-cost houses by 2015.
“It’s a good plan but up to now we do not see a lot happening and growth is still driven by investment,” said Shuang Ding, an economist with Citigroup in Hong Kong. “There’s no turning point so far.”
Growth in furniture sales eased to 26 per cent in May from 37 per cent a year earlier, while household electronics sales rose 15 per cent after gaining 27 per cent, official data shows. Car sales fell for the first time in more than two years in May after subsidies ended this year, supply chains were disrupted by the Japanese earthquake, and the property clampdown helped to depress demand.
Consumption would have to grow three percentage points faster than GDP to reach 40 per cent of the economy within five years, according to Michael Pettis, a finance professor at Peking University.
“We would need the highest consumption growth ever recorded,” Pettis said. “In the short term we’re not going to see a lot of change.”
Hu isn’t expecting any quick turnaround either. “Making money is getting harder this year,” he said. “Business is slack.”
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