Consumers in China are trimming their spending due to the ongoing trade war and adverse economic conditions.
In the heart of the global trade war, US-China talks are set to take place this weekend in Geneva, with China maintaining a bold stance. The Asian powerhouse declares that it will not bow down to the Trump administration's economic coercion, making it clear that the US requested the negotiations.
To combat the tariffs and dwindling external demand for its products, China is readying a significant economic boost. This stimulus package includes increased subsidies geared towards encouraging domestic spending.
David Daokui Li, an economist at Tsinghua University, suggests that a 1-2% increase in Chinese households' consumption as a share of GDP could offset the effects of President Trump's tariffs. He emphasizes the need for strengthening China's pension and healthcare system to inspire consumer confidence, but acknowledges that this is a long-term solution.
In the short term, Li recommends raising household consumption from its current 49% of GDP to around 51%. However, Chinese consumers are not easily swayed to open their wallets. The government has offered incentives, such as rebates on electric vehicles and subsidies for trading in old appliances, to stimulate domestic consumption. Officials claim these inducements have been effective, with Li praising the US tariffs for bringing urgency to policymakers.
Before the trade war, China's economy was already facing a rough patch. The property sector, responsible for 70% of China's household wealth, experienced a sharp correction. Youth unemployment remained stubbornly high, and signs of belt-tightening were evident on Chinese city streets, with people opting for cheap meals and flash sales.
Many Chinese consumers, like Shanghai resident Jasmine Zhan, have adopted a trend known as "consumption downgrade." Instead of splurging, they now think carefully before making purchases, considering their long-term needs and financial stability. Before the trade war, Jasmine enjoyed fancy lunches and dined out frequently. Now, she works as a barista, grappling with reduced income and lower expenses.
Wang Zitong, a young hospital nurse in Beijing, shares similar sentiments. Although she has cut weekly spending by 25%, she remains optimistic about China's economic future. She now focuses on essential purchases and plans to invest in gold.
Despite the challenges, both Jasmine and Wang believe that maintaining their average quality of life is crucial and do not view their current spending habits as a "consumption downgrade."
The stimulus package announced by China is a comprehensive and multifaceted approach to combat the economic slowdown caused by US tariffs and domestic issues. It combines monetary policy easing, fiscal spending, and targeted support for technology modernization and consumption, with the intent of stabilizing growth and protecting jobs amid ongoing external and internal pressures.
- The US-China talks in Geneva this weekend are not just about tariffs, but also about China's stance on the government's economic coercion by the Trump administration.
- To mitigate the impact of the tariffs and boost the economy, China is planning to provide a substantial economic stimulus, which includes enhancing pension and healthcare systems to promote consumer confidence.
- As a short-term solution, Chinese policymakers are considering ways to increase household consumption from 49% to around 51% of the GDP, offering incentives like rebates on electric vehicles and subsidies for trading old appliances.
- Before the trade war, China's economy was grappling with issues like high youth unemployment and a downturn in the property sector, leading to consumers adopting a trend called "consumption downgrade" - careful consideration of purchases based on long-term needs and financial stability.
- The stimulus package announced by China aims to stabilize growth and protect jobs through a combination of monetary policy easing, fiscal spending, and targeted support for technology modernization and consumption, with the ultimate goal of maintaining an average quality of life for its citizens amid ongoing economic pressures.