China’s Economic Rebalancing: Challenges, Consumer Confidence, and Stimulus Efforts

For more than 20 years, Chinese authorities have discussed rebalancing the economy from investment and exports to consumption.

However, as President Xi Jinping’s austerity campaign and crackdown on consumer credit have demonstrated, a collectivist approach to economic planning is difficult to reconcile with free-spirited consumption. It appears that Beijing is still not eager to throw out the old paradigm, given their recent stimulus program.

Beijing officials recognise that a growth paradigm based mainly on fixed-asset investment and exports may not be sustainable.

The $18 trillion economy’s slowing growth and deflation draw parallels with Japan’s protracted era of economic stagnation that began in the 1990s.

To avert this outcome, most economists think that China would need to resolve the imbalance, most likely by spending trillions of yuan to promote consumption and stimulate development.

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Consumer confidence in China is approaching a historic low as short-term supporting policies implemented this year have had limited impact in the face of decreasing asset prices, weak wage growth, and capital outflows, according to investment bank Nomura on Wednesday

According to Nomura, the consumer confidence index for the world’s second-largest economy fell to 86 in July from 86.2 in June, just above the all-time low of 85.5 in November 2022 during the coronavirus outbreak.

According to the National Bureau of Statistics, consumer confidence has dropped  further after the Covid epidemic. Much of this is due to the continuous downturn in the real estate industry.

With the value of their most important household investment falling, many people are returning to their traditional method of saving for the future.

To fully restore consumer confidence, we believe Beijing must deploy bolder more efficient stimulus measures to address the underlying issues in the property industry, according to Nomura.

China will increase efforts to boost consumer spending and domestic demand across a variety of sectors, providing a much-needed boost to the country’s economic development momentum in the last months of the year, authorities and analysts said.

China Ramps Up Consumer Spending Initiatives Ahead of Year-End Economic Push

Consumption vouchers in the service sector will be provided. Besides, new corporate incentives, would be implemented to help the world’s second-largest economy shift to a more consumption-led model, they said.

Vice-Minister of Commerce Sheng Qiuping  stated at a news conference that by commencing the consumption promotion campaign in November, the country will further unleash the spending potential and significantly support the year-end economic performance.

The idea will encourage offline businesses to actively participate in promotional events, while also building synergies with the existing Double Eleven shopping festival, Sheng said. Double Eleven is an annual e-commerce shopping event that culminates on November 11th.

According to Sheng, consumption certificates for catering, cultural tourism, and sports services will be distributed in Beijing, Tianjin, Shanghai, and Chongqing during the next month.