A recent report highlighted the central role played by household consumption in delivering sufficient economic momentum to meet the government’s growth target of 5% for 2023. In the absence of the traditional drivers of Chinese economic growth such as exports, housing and fixed asset investment, all the heavy lifting falls on the shoulders of the household sector.
Despite multiple bearish narratives among foreign commentators, including calls for “helicopter money” that have zero chance of ever being considered by Chinese policymakers, Chinese consumption activity appears resilient. The pace of overall retail sales, as well as of online sales, is running well ahead of overall GDP growth, consumer confidence is edging higher after the traumas of last year’s lockdowns, and households have eased the pace at which their bank deposits are growing, indicating a willingness to use precautionary savings.
Furthermore, fears of “deflation” are grossly exaggerated, with declining headline inflation driven entirely by falling food prices. With food accounting for nearly a third of household spending, this is potentially reflationary, rather than deflationary.