How Chinese Consumers Will Determine the Fate of the Nation’s Economy
The well-known shopping streets in Shanghai have not fully recovered from the pandemic. Despite the strict coronavirus measures being lifted in December, small businesses in the central commercial hub of China continue to struggle to bounce back. Liu Jun, who owns a flower shop near Shanghai’s famous Jing’an Temple, said, “It’s still not okay,” after half of his six years in business were disrupted by erratic lockdowns under President Xi Jinping’s “zero covid” policy.
Many shop owners between the temple’s high-rises, highways, and tree-lined paths were hoping for an increase in “revenge spending” following the abrupt ending of the zero-covid policy in December due to Beijing’s concerns about the increasing economic impact. China is currently facing its weakest economic indicators in decades, after three years of recurring lockdowns, including a particularly difficult one in Shanghai last spring. The country’s GDP only grew by 3% last year, a sharp contrast to the 8% growth in 2021, which was the lowest level since 1976, the year when the disastrous Cultural Revolution of Mao Zedong ended.
Experts both inside and outside of China believe that the country’s $6 trillion consumer market is essential in getting the world’s second-largest economy back on track, mainly because global demand for China’s products is still low. However, the anticipated surge in consumer spending following the policy’s cancellation has yet to occur. The streets in the Jing’an district, which mean “peace and tranquility,” are still too quiet for shop owners like Liu, who said, “We haven’t had a good year in a while.”
Shanghai, which is the financial and commercial hub of China and has the largest population of 25 million residents, faced immense difficulties during its two-month lockdown that started to ease in June. Although the zero-covid policy officially ended, it had a lingering impact on consumer demand. Victor Shih, an associate professor of political economy at the University of California at San Diego, stated that despite the overnight abandonment of the zero-covid policy, there hasn’t been a rush of people to restaurants and movie theaters, as was expected.
Contrary to expectations, retail sales decreased by 2.6% in December compared to the previous year, and the traditional Lunar New Year spending spree remained dull. Companies like Yum China, which owns Pizza Hut and KFC in China, have exercised caution because of the wariness of consumers, while high-end brands like Estee Lauder and Gucci have witnessed a decline in demand in China. There are some signs of hope, such as in January, where box office revenues rebounded, surpassing $1.46 billion for the month, which was higher than the pre-pandemic levels, according to the China Film Administration.
Over the previous three years, people had to remain at home for weeks on end, even if they had a slight possibility of exposure. With the prospect of being quarantined for weeks after a trip to the mall or work, there was little incentive to spend. Outbreaks affected people from all walks of life, forcing businesses to close for several weeks while customers and employees remained stuck at home.
Outbreaks in factories and ports caused months-long delays in the supply chains for goods ranging from shoes to cars. However, those whose businesses depended on walk-in customers, such as corner stores and sidewalk snack sellers, suffered even more and had to close down permanently. Li, a beef noodle shop owner for 20 years in Jing’an, a neighbor of Liu, said that his business this year has been even worse than the previous year due to covid. He refused to share his name and stated that people are still not coming out much.
There is a sense of nervousness among people, and surveys reveal that Chinese company managers remain pessimistic due to the government crackdown on high-tech companies, causing anxiety among investors. The impact of China’s economic slowdown could lead to major political implications. China’s Communist Party has retained its power by prioritizing economic growth over political reform. However, the recent economic difficulties due to the pandemic have put pressure on households, challenging this approach.
The authoritarianism of President Xi Jinping also poses a threat to economic growth. Economists predict that China’s economy will grow by 5.2% this year, but restoring consumer confidence will be crucial to achieving this target. To stimulate the economy, the government needs to address the ongoing instability in the property market, which has adversely affected the construction sector. Although the government has offered tax breaks and urged small businesses to boost consumption, it has not provided any direct stimulus.
Furthermore, local governments have been unable to stimulate the economy and are cutting salaries for civil servants, thereby reducing their consumption power. The Chinese middle class must spend more on large purchases, including appliances, cars, and homes, for the economy to recover. Nevertheless, the recent property market crisis has led to a decline in confidence. Policymakers must quickly address this issue and revive the growth engine. Although some remain optimistic, the economic situation remains uncertain.
Source: The Washington Post
