The anticipated momentum in China’s economic recovery seems to be losing steam, disappointing money managers who eagerly await signs of improvement. Recent data from China Beige Book reveals that the positive trends observed in August did not progress further in September. As per a monthly flash survey conducted by the independent research firm, which included feedback from over 1,300 companies, job growth and consumer spending experienced a downturn. Furthermore, orders for exports reached their lowest point since March.
The survey results suggest that the initial surge in consumer spending following the easing of COVID-19 restrictions may be subsiding, particularly in the food and luxury sectors. Although travel remains relatively strong leading up to the Mid-Autumn Festival, hospitality firms and chain restaurants have witnessed a significant decline in sales.
The property market, despite efforts by policy makers to stabilize it, continues to face challenges. The data revealed a decrease in sales and prices for both residential and commercial properties for yet another month.
Adding to the concerns is the ongoing turmoil surrounding Evergrande Group. The company has abandoned its restructuring plan, raising the possibility of a liquidation that could further disrupt the property market and erode confidence in the overall economy. Additionally, Evergrande Group’s chairman, Hui Ka Yan, who is currently under police scrutiny, has been suspected of committing criminal offenses.
Nicole Kornitzer, the manager of the $750 million Buffalo International Fund (BUIIX), expresses worry about a “recession of expectations” as declining confidence hampers spending by individuals and businesses. At present, Kornitzer maintains only a small portion of the fund’s assets in China.
Concerns About Consumer Spending in China
As China emerges from the impact of the COVID-19 pandemic, experts are closely monitoring the country’s consumer spending trends. Vivian Lin Thurston, the manager for William Blair’s emerging markets and China strategies, shares the concerns voiced by many regarding the lack of confidence among consumers and small- and medium-sized enterprises (SMEs).
Thurston points out that while people are gradually resuming their daily activities, there is a noticeable decrease in the amount and value of purchases made. As a result, retail sales have not experienced a robust recovery yet. Lower-income consumers, in particular, continue to face financial pressure due to the slow restoration of employment and income levels.
Another pressing issue lies with SMEs, many of which are struggling to survive and waiting for signs of economic improvement before considering expansion. The pandemic forced numerous businesses to shut down, and they have yet to recover. Therefore, the stimulus measures implemented so far have proved insufficient in addressing these challenges.
Thurston emphasizes that the Chinese government needs to take further action to stabilize the property sector, which plays a vital role in the overall economy. There are expectations that additional support may be provided in the fourth quarter or once the Federal Reserve has concluded its interest rate hikes.
The diverging paths taken by the Federal Reserve and Beijing in terms of interest rates are already exerting pressure on the renminbi. If Chinese policymakers opt to wait until the Federal Reserve has completed its tightening cycle, it would relieve some strain on their currency before their own fiscal stimulus takes effect.
It remains critical for China to demonstrate sustained improvements in consumer spending, expanding beyond sectors like travel and dining out. Signs of stabilization in the housing market would be an encouraging development. By doing so, China can instill confidence in both its citizens and SMEs, paving the way for a more robust economic recovery.