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The Chinese are saving money despite record price cuts

Chinese consumers are saving money, despite the fact that the country has recorded a record deflation over the past three years – a drop in prices. The Financial Times writes about this.

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Consumer prices in China have been in a state of deflation over the past four months, and in January fell at the fastest annual pace in 15 years. Although the main dynamics are observed in food, and prices in other sectors are rising, all selling companies – from cosmetics to electrical goods – are offering discounts. In addition, car prices are falling at the fastest pace in 22 years.

Falling demand

Retail sales rose 7.4% in December amid a low base in December, according to official data. December 2022 as the Covid pandemic swept across the country. For the full year, which was affected by similar base effects from lockdowns, retail sales grew by 7.2%.

A Morgan Stanley consumer survey for December, released in January, found that most respondents expected the economy to improve in the next six months. But it also notes that 76% of consumers cut spending in at least one category over the past six months, and that across all categories, consumers were more likely to switch to cheaper brands than to more expensive ones.

People's incomes are not growing

Fred Neumann, co-head of Asian economics at HSBC, suggested that the reason for low consumption is a lack of income growth. A Morgan Stanley survey found that only 45% of consumers expect household finances to improve over the next six months, the lowest level in over a year.

Recall that the Chinese economy is experiencing the most deflationary pressure in recent memory 3 years, and weak domestic demand casts doubt on economic recovery in 2024.

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