Chinese shoppers are buying less than they used to — but they're spending on experiences

  • China's economy shows an uneven recovery; industrial output has risen, but retail sales have slowed.

  • Factory activity beat expectations, but consumers are holding back, impacting retail-sales growth.

  • The property crisis is worsening, with new-home prices falling at the fastest pace in over nine years.

On Friday, China released data showing an uneven economic recovery that's keeping consumers from spending.

Factory activity increased, with industrial output rising 6.7% in April from a year ago, beating the 5.5% growth that analysts polled by Reuters had expected.

The employment landscape improved. The urban unemployment rate fell from 5.2% in March to 5% in April.

Retail sales, however, rose 2.3% from a year ago, slowing from a 3.1% increase in March and below the 3.8% forecast from economists polled by Reuters — an indication that consumers are holding back.

Lynn Song, the chief economist for the Greater China region at the Dutch bank ING, wrote in a note on Friday that a closer look at China's retail-sales data showed the largest drag was from car sales, which fell 5.6% from a year ago,

"The data may add fuel to the fire for the critics of China's overcapacity in this sector," Song added, alluding to the West's criticism of China's industrial overproduction, particularly in green-energy products such as electric vehicles.

Chinese consumption of clothing, cosmetics, and gold and jewelry also declined from a year ago. Song said this showed that "many categories of discretionary consumption remain on the weak side."

But China's consumers appear to be spending their money on experiences. Song noted that consumption in the "eat, drink, and play" categories of catering, tobacco and liquor, and sports and recreation were outpacing headline growth.

In particular, spending on sports and recreation grew nearly 13% from a year ago.

"Consumers have been forgoing big-ticket purchases in favour of spending in these categories in 2024," Song wrote.

Growth in fixed-asset investment from January to April also came in below expectations, rising 4.2% instead of the 4.6% analysts expected.

China's epic property crisis got worse

Although China's economy is showing some signs of improvement, its property market is still struggling.

Property investment fell 9.8% in the first four months of the year from a year ago. That's worse than the 9.5% decline recorded in the first three months of the year.

Reuters calculations based on official data found that new-home prices in April also fell at their fastest pace in more than nine years.

The calculations showed prices were down 0.6% month-on-month in April, deeper than a 0.3% fall in March and the fastest pace since November 2014.

The decline is despite Beijing's efforts to support the property sector, which accounted for about one-quarter of China's GDP.

China's economy is now in a painful transition from its reliance on lower-cost manufacturing and property to the "new three" industries of electric vehicles, solar cells, and lithium batteries.

Beijing's support measures also include the sale of 1 trillion Chinese yuan, or $138 billion, in ultra-long special sovereign bonds to fund infrastructure spending.

On Friday, Beijing announced plans for local governments to buy up unsold commercial housing, the state news agency Xinhua reported, citing Vice Premier He Lifeng's statements at a video conference. He added that the homes would be converted to affordable housing without giving further details.

Beijing is also considering a plan for local governments to buy up millions of unsold homes, Bloomberg reported on Wednesday, citing people familiar with the matter.

ING's Song said he expected China's economy to be powered by public spending and investment this year as private-sector and household sentiment remained weak.

"Consumption growth is likely to remain moderate through most of 2024, as consumer confidence remains downbeat amid tepid wage growth and the lingering negative wealth effects from the past several years of declining asset prices," Song wrote.

China's markets — which have been on a rally in recent weeks following a meltdown at the start of the year — were little changed following the data release. The CSI 300 Index and Shanghai Composite Index were both up 0.2% at 2:05 p.m. local time, while Hong Kong's Hang Seng Index was 0.6% higher.

Read the original article on Business Insider