Robust consumption offsets slowdown pressures on GDP
Slowdown – what slowdown?
That appears to be the typical response of observers of the Chinese economic growth trajectory these days.
As the world’s second-largest economy – 82.71 trillion yuan ($11.91 trillion; 10.5 trillion euros; ￡9.3 trillion) in 2017, up 6.9 percent – weans itself off exports and increasingly becomes consumption-driven, sectors like services are hogging as much limelight as traditional growth engines like manufacturing and infrastructure, areas that some believe are troubled now.
“Stable income growth will support consumption growth at a steady level, providing a sound base for the overall economy this year,” says Liu Aihua, spokeswoman for the National Bureau of Statistics.
For economists, concerns over a potential debt-bubble-burst no longer seem terrifying, it seems. Focus is now on the success of the reform and opening-up policy, and fresh measures to sustain high growth rates by nipping potential risks in the bud and stoking expansion of emerging business segments.
Among such measures, the push to services has caught the attention of economic pundits. Within services, segments like extracurricular education, as an example, are seeing enormous demand and recording runaway growth. This is raising hopes that the annual GDP growth targets – around 6.5 percent for 2018 – will likely be achieved no matter what, experts say.
Skeptics may question such views, but a quiet street in western Beijing appears to bear silent, but clinching, testimony that optimism about the Chinese economy is well founded.
On a Saturday morning in November a crowd of young parents and their kids converge here. They are eager to find their way through a passage that leads up to a modern shopping mall. The main gate is still closed, but a cavernous tunnel-like passageway leads them to the third floor. Their destination is an area that is home to more than 20 training centers for kids. These new-age, for-profit business ventures target children aged 3 to 16. They consist of baby swimming centers, painting workshops, dancing classrooms, so-called robot innovation centers and more.
Gao Ruixue, a young mother, watches from across a glass wall as her 5-year-old daughter tiptoes gingerly in a ballet classroom. Gao drives 15 kilometers to bring her daughter to the 9 am class. During the two-hour class, parents such as Gao sit and wait outside the arena. “Fortunately, we were not late this time,” she says.
It’s a big deal for parents such as Gao to be able to find a place for their kids in training centers like this one.
They spend a great deal of money, energy and time to ensure that. In doing so, they help keep the wheels of the macroeconomy turning.
The scene is more or less the same outside every center: Long lines of parents on benches, and groups of parents standing because there are not enough chairs to sit on. They have small talk, a shared sense of achievement and a bit of anxiety.
“I just paid 28,000 yuan toward next year’s tuition fees for my daughter. It’s for 90 hours, but the price could have been higher had I paid it late,” Gao says.
As soon as the dancing class finishes, she whisks her daughter away to another center next door, this time for an English-language class.
Not surprisingly, Gao’s smartphone embeds her family bank account, which she accesses every now and then to pay this bill or that. Gao and her husband pull in some 40,000 yuan in post-tax monthly income, of which 30 percent, or 12,000 yuan, is spent on the girl’s training bills.
And 10,000 yuan, or a quarter of their monthly income, goes toward mortgage repayment. “A second child is on our minds, but we’re not sure if we should try, given the financial implications,” Gao says.
The significance of the thriving new-age learning centers is amplified in the shopping mall where fashion stores and the like have shuttered due to high rents.
But executives of learning centers are unfazed. “We have more than 1,000 kids on our rolls,” says Wang Yuxuan, a sales consultant at the ballet training center. “We don’t worry about the rent. We will open a new branch next year as the membership keeps growing.”
According to a Tencent research report based on a survey of 1,500 Chinese families, about 22 percent of a family’s annual income goes toward children’s expenses on average. And education accounts for the largest part of that chunk.
Children’s extracurricular education as a consumption item is growing at 21 percent annually. Children-related consumption in China is likely to reach 4.5 trillion yuan this year, according to the Tencent report.
If that comes to pass, it would be the equivalent of more than 10 percent of total retail sales in China, which are expected to grow nearly 9 percent this year to 40 trillion yuan.
This, economists agree, spells glad tidings as China’s exports and fixed-asset investment are facing a slowdown this year.
Consumption has therefore come to be seen as one of the pillars on which headline GDP growth rests, economists say.
Data from the National Bureau of Statistics shows that in the first three quarters of this year, per-capita spending in China reached 14,281 yuan, up 8.5 percent year-on-year. The growth rate itself is higher too – it was 7.5 percent in the first three quarters of 2017.
Almost 11 percent of per-capita spending went to education, cultural and entertainment-related consumption, NBS data shows.
Per-capita disposable income rose to 21,035 yuan in the January-August period from 19,342 yuan a year earlier. Some economists believe traditional economic sectors could still drive growth to around 6.5 percent, this year’s target. NBS data shows new business activities relating to knowledge capability, economic vitality, innovation and the internet economy have been growing stronger, easing concerns over risks exerting downward pressure on growth.
“The internet economy, especially e-commerce, maintains exuberant growth momentum, along with emerging consumption patterns like niche online shopping,” says Ye Jingyi, a senior economist with the NBS.
China remains the world’s largest e-commerce market with online sales in the first quarter of this year reaching $307.4 billion, up 35.4 percent year-on-year.
In the US, online retail sales in the first quarter reached $123.6 billion, up 16 percent year-on-year, according to a report from PwC, a global professional services firm.
Goldman Sachs forecast that this year, consumption in China may contribute 4.9 percentage points of the expected GDP growth rate of 6.6 percent, higher than 4.5 percentage points last year. But consumption is likely to slow next year, and is estimated to contribute 4.3 percentage points of the GDP growth.
The “still-solid labor market and steady wage growth” could support the positive expectation on Chinese consumption in 2019, says MK Tang, an economist with Goldman Sachs.
As per NBS data, the unemployment rate fell marginally this year. “Our wage tracker suggests nominal wage growth stabilized at around 7.2 percent this year, after moderating for three to four years since 2013. This should offset some of the downward pressures,” Tang says.
Recent surveys by the NBS and the central bank suggested that the consumer confidence level edged down of late, as reflected in fewer urban bank depositors willing to consume.
According to a Goldman Sachs report, expectation of further weakening in fixed-asset investments, especially in infrastructure, is likely to accelerate policy support measures to protect growth.
“Worries about a possible comeback of the debt-driven growth model, or a diminished economic role of private enterprises, weigh heavily on investors’ minds. Policymakers need to strike a fine balance between averting a sharp slide in growth and preventing a fast debt buildup,” GS notes in its report.
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Children learn ballet at an art studio in Handan, Hebei province, in July. Many parents in China spend a great deal of money, energy and time for their children to study at training centers after school, which helps keep the wheels of macroeconomy turning. Cheng Xuehu / For China Daily |
(China Daily European Weekly 12/07/2018 page30)