China’s consumers let the side down

China’s consumer spending, which already makes a lackluster contribution to the world’s fastest-growing economy compared with investment and trade, may have hit a two-decade low as a share of gross domestic product (GDP) last year, despite anticipated growth in urban income higher than that of the aggregate economy, according to a Chinese government think-tank.

As housing prices continue to rise, Chinese people’s stronger desire to buy their own homes may further curb their consumption of other commodities.
In November alone, housing prices in the 70 cities were up 10.5% on average year-on-year, the largest monthly gain since July 2005 when China started to cover more cities in its monthly housing price survey.

Li said another factor was the surging price of food, especially of pork, vegetable, edible oil and grain. In November, the consumer price index rose 6.9%, more than double the government’s inflation target of 3% and the biggest increase since 1996. Food prices, accounting for one-third of China’s CPI, ballooned 18.2% year-on-year in November, compared with 17.6% in October.

Fixed-asset investment, exports and domestic consumption are considered as the troika pulling forward China’s economy. However, in the past two decades, domestic consumption has remained weak while growth in investment and exports are strong. So much so that there is a saying in China that the cart of the Chinese economy is pulled by two strong horses and one weak donkey.

Asia Times