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China’s cautious consumers offer clues for post-Covid world

Consumers in China remain cautious even though the Covid-19 outbreak has been under control for much of the past year. That’s offering clues for the kind of spending patterns that emerge globally once pent up demand fades.

While China didn’t pump up consumers with stimulus checks, its aggressive control over the virus allowed the economy to quickly re-open and drive real household income growth to 13.7% in the first quarter of this year.

Yet the consumer recovery has been weaker than expected with economists identifying two major reasons: an unequal distribution of savings from the pandemic and lingering virus worries that’s prompted more conservative habits and has lowered spending on services -- subduing an otherwise V-shaped recovery for the world’s second-biggest economy.

Like the U.S. and U.K., retail sales in value terms are above pre-pandemic levels in China, while they are recovering in the euro area. Consumers in the largest economies amassed $2.9 trillion in extra savings during Covid-related lockdowns, according to Bloomberg Economics, which is helping to fuel the fastest world growth in 60 years in 2021.

The question is what happens to spending on services and how sustainable the global consumer rebound proves to be. Evidence from China suggest the recovery could be slow despite the nation’s world-leading 20 million vaccine doses a day with more than 40% of the population having had at least one shot.

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