Over recent years, consumer spending has played a vital role in balancing China’s cyclical economic swings, smoothing the fluctuations in exports and capital investments. However, recent indicators suggest that this economic ballast is weakening. Consumer prices are approaching deflation, with the core Consumer Price Index (CPI) averaging 0% growth per month in 2024. Furthermore, retail sales have risen by less than 1% since the beginning of the year (2024), signaling stagnation in household spending. This trend is compounded by the deteriorating job market, which threatens household income and may exacerbate economic sluggishness in the coming months.
China’s economic management strategies are being tested by these developments. The ongoing property market collapse, which began in July 2021, continues to weigh on the broader economy. The Chinese government has largely refrained from aggressive interventions, opting instead to focus on policies that promote industrial growth. This approach was taken with the belief that the real estate bubble had expanded too far, and its correction was necessary, regardless of short-term economic pain. However, this optimistic scenario, which assumes that domestic consumption will remain stable while real estate investment declines, is being undermined by the weakness in household spending.
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