China’s consumer spending was robust in the first quarter, supporting the country’s overall economic expansion amid a looming trade war with the US. But the pace of retail sales growth slowed compared with last year, adding to concerns whether Beijing could accomplish its task of boosting domestic consumption to offset the slowdown in investment amid its deleveraging push.
Retail sales for the three months ended March increased by 9.8 per cent to 9.02 trillion yuan (US$1.43 trillion) compared with 10 per cent a year earlier, according to figures released by the National Bureau of Statistics on Tuesday.
China’s overall economy expanded 6.8 per cent in the first quarter, with consumption contributing to 77.8 per cent of the growth, far exceeding investment and exports, data showed.
The slowdown in retail spending growth was particularly noticeable in the rural areas where consumer spending expanded by 10.9 per cent to 1.32 trillion yuan in the first quarter, compared with a growth of 11.9 per cent last year, while the growth in the urban areas was unchanged from last year at 9.7 per cent, with sales reaching 7.70 trillion yuan.
“The biggest challenge for China’s economy this year is a possible slump in the growth of consumer spending,” said Jiang Chao, chief economist at Haitong Securities. “No matter how China’s export and investment landscape changes in the short term, they hardly will have an impact on the economy in the long run, as now the country is betting on a consumption driven economy rather than one led by more exports and investments.”
Domestic consumption has long been billed by China’s leadership as a new growth engine, which is expected to offset the slowdown in investment as Beijing has been accelerating its deleveraging push among sectors as it grows increasingly wary of mounting debt levels due to excessive borrowing from state owned and private enterprises as well as local governments.
However, the seemingly robust retail sales figures for first quarter may have masked a future slowdown in consumption, as the numbers usually include some government purchases and wholesale transactions, say analysts.
More than half of the 100 largest retail enterprises in China saw negative sales growth compared with the same period last year during the Spring Festival in February – usually one of the peak seasons, according to the China National Commercial Information Centre, a state-backed consultancy that is authorised by the National Statistics Bureau to release figures on the trade and services segment.
Overall, sales volume of the 100 companies during the period decreased by 1 per cent compared with 2017.
One of the possible reasons for the slump in first-quarter consumer spending could have been because of loan repayments, which could have weighed on retail sales, according to Jiang.
Chinese households borrowed about 8 trillion yuan in consumer loans last year, according to figures from the People’s Bank of China.
The country’s household debt accounted for 49 per cent of gross domestic product in 2017 compared with 17.9 per cent in 2008, rising nearly 3.5 percentage points a year, according to state-backed think tank the National Institution for Finance and Development.