Deeper Inside the Chinese Consumer Spending Data
The shortfall in household spending since 2019 is massive no matter how you count it.
My previous note on the global implications of China’s persistently weak domestic demand had a chart showing the large and growing gap between the actual level of retail spending on goods and meals relative to the pre-pandemic trend.
Some people objected to this, claiming that retail sales are unrepresentative of broader consumption trends in China. After all, goods only account for about half of total consumption, and the services share has long been on a rising trend.1 The monthly numbers on “retail sales of services” imply that spending in January-July 2024 was 7.2% higher than in January-July 2023—substantially faster growth than the 3.5% year-to-date increase in retail sales of goods and meals. Perhaps overall consumer spending is not quite as depressed as the headline retail data imply?
While this sounds like a legitimate point, there are several problems.
For one thing, even though the shift from goods to services has been happening for years, the sudden gap down in goods spending is tied directly to the pandemic. It would be extremely odd if China were the one outlier where consumer services demand suddenly rose relative to spending on goods when people were locked in their apartments. Tellingly, the “retail sales of services” numbers only go back to July 2023, and provide no details on spending by type of service.
More importantly, the other available data—most of which are only published at a quarterly or yearly frequency—are consistent with my original claims: Chinese consumers were hit exceptionally hard by the pandemic, their spending remains far below the pre-pandemic trend, they have done worse than Chinese manufacturers, and the corollary has been a sharp expansion of China’s trade and current account surpluses.