Talk about China’s economic prospects increasingly uses the term “revenge spending.” It is a strange use of language. Who, one must ask, is taking revenge on whom? Semantic failures notwithstanding, the term seems to refer to a surge in consumer spending now that the economy has reopened – spending with a “vengeance” – and how it will propel rapid overall growth rates in 2023. That certainly is Beijing’s hope. Some of this will occur but not enough to erase the effects of other growth impediments facing China’s economy.
Chinese households certainly seem to have the wherewithal to spend freely. During the past year of zero-Covid lockdowns and quarantines, they have increased their cash bank balances some 80%, adding about 17.8 trillion yuan to their savings total, the equivalent of $2.6 trillion or nearly $900 billion more than they otherwise would have had past patterns prevailed. Many forecasters expect this extra money to propel consumer spending up smartly this year, 9.5% according to a recent analysis by PNB Paribas, allowing China to turn in 5% overall real growth according to its analysis.
Reinforcing such optimism, early reports show quite a pickup by Chinese consumers. Travel surged for the January Lunar New Year celebrations. Some 300 million travelers spent the equivalent of $56 billion in just seven days. Hotel bookings soared tenfold. Restaurants, according to the China Cuisine Association, were overwhelmed with traffic, managements reported severe understaffing. Box office receipts rose by the equivalent of some $1.5 billion, the best January on record. Caixin/S&P Global reports that its services purchasing managers index (PMI) rose in January for the first time in five months.
Still, in all this enthusiasm, signs of restraint were evident. The surge in travel spending took totals 30 percent above year ago levels. That is impressive but it was far short of the 80 percent surge in available funds. It is also telling that apart from travel and entertainment most of the general consumer spending surge concentrated on “luxury goods,” suggesting that the distribution of these savings is too narrow to carry the whole economy on a sustained basis. At the low end of the income distribution, savings levels only increased some 5 percent.
Most telling is the ongoing economic drag imposed by the still-troubled real estate sector. Once as much as 30 percent of China’s economy, residential development is mired in debt and shows no signs of recovery. Property sales declined 32 percent in January and are running 40 percent below 2022 levels. As of last December, the most recent period for which data are available, home prices have declined for 16 straight months. Since real estate is some 70 percent of Chinese household wealth, these still-negative facts raise significant questions about the sustainability of any “revenge spending.” What spending there is seems to have focused on immediate satisfactions and little of its shows a willingness by Chinese households to commit over the longer term. Spending on big-ticket items has shown much less of a lift. For all the records set in travel, hotels, and entertainment, outlays for autos, for instance, remained in mid-January some 21 percent below year-ago levels.
Read More at https://www.forbes.com/sites/miltonezrati/2023/02/27/will-revenge-spending-do-china-any-good/