Consumption Recovery a Major Challenge for Stabilising China’s Economic Growth: Sheng Songcheng

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One of China’s leading economists has highlighted the challenge posed by ailing consumption for efforts to stabilise the growth of the Chinese economy in 2022.

Sheng Songcheng (盛松成), professor at the Shanghai University of Finance and Economics (SUFE) and formerly the head of the central bank’s statistical department, said that consumption is the “most effective channel for accelerating the recovery of work and production” in the wake of the Covid pandemic.

Speaking at the release of SUFE’s “2022 China Macro-economic Condition Analysis and Forecast Mid-year Report” (2022中国宏观经济形势分析与预测年中报告) on 6 July, Sheng said that recovery in consumption tends to lag that of other parts of the economy.

“Looking at the recovery of the national economy after the spread of the pandemic in early 2020, industrial production and investment achieved a rapid rebound, but it took over a year before consumption returned to pre-pandemic levels,” he said.

In 2022 consumer sentiment continues to remain tepid in China. A second quarter survey by the People’s Bank of China (PBOC) found that the number of households inclined to save more rose by 3.6 percentage points compared to the first quarter, yet respondents indicating that they were inclined to consume more rose by just 0.1 percentage point.

Savings levels have markedly increased in China in 2022, with household deposits rising by 7.86 trillion yuan during the period from January to May, as compared to 5.22 trillion yuan for the same period last year.

At the same time consumer loans increased by just 1.33 trillion yuan, as compared to 3.71 trillion yuan for the same period last year, and an average of 3.05 trillion yuan for the period over the past five years.

Sheng Songheng said that the decline in loan growth was closely related to a drop in real estate sales following the pandemic, as over 50% of household lending is in the form of mortgages.

While the Chinese government is adopting a range of measures to help drive consumption, include consumption vouchers, automobile subsidies and campaigns to increase household appliance sales in the countryside, Sheng said that “most fundamental channel” for raising consumption will be increasing household incomes and improvements to expectations.

“Chinese people are especially hard working, and as long as they have work opportunities they will increase their incomes and raise consumption,” Cheng said.

“For this reason we must play close attention to the survival challenges of market entities, and comprehensively achieve a recovery in work and production.”