China – Household sentiment turned gloomier

Data has already shown signs of consumption weakness

As we mentioned in an earlier Economic Insight , we think the recent rise in retail sales growth, thanks to the stimulus measures, is just temporary. The policy impact is unlikely to be long-lasting. In fact, retail sales slowed in June after a strong gain in May. Apart from big-ticket items and consumer electronics that were supported by the government’s trade-in program, growth in retail sales of other goods slowed or even declined.

Households are facing pressures

We think that the government’s consumption stimulus would only provide a temporary boost without lifting the underlying domestic demand weakness. The latest data from the PBoC Urban Depositor Survey support our view.

Households have become even more pessimistic about the jobs prospect. As we discussed previously , the number of loss-making private companies has risen sharply in recent years due to overcapacity and ruinous competition (or “involution”). If businesses are not profitable and confidence is weak, they will not be hiring. If consumers are worried about their incomes and jobs prospects, obviously they would prefer to save more and spend less.

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