Chinese consumer confidence remains weak in fourth quarter as Beijing looks for answer to economic worries

Chinese consumer confidence sat at a low level in the fourth quarter of 2018 and is still well below where it was a year ago due to greater worries about a slowing economy amid the trade war with the United States, according to a survey compiled by Beijing-based Capital University of Finance and Economics released on Wednesday.

The consumer confidence index stood at 99.4 in the October-December period last year, compared with 99.3 in the previous quarter " but well below the 105.1 of the last quarter of 2017. Readings above 100 indicate that consumers, on balance, are optimistic, while readings below 100 show that they are not, according to the survey.

The Chinese government has been counting on strong domestic consumer spending to help offset the effects of the trade war with the US. However, increasing worries about jobs and incomes have caused many consumers to cut back their discretionary spending. This "consumption downgrade" was evident in retail sales figures for November, which fell to their lowest level in 15 years.

The latest confidence data indicate that the mood of consumers has not improved, suggesting their spending will continue to underperform government expectations.

The fourth quarter consumer confidence data, which was collected from mid- to late December, may have been given a boost by the announcement by Chinese President Xi Jinping and US President Donald Trump on December 1 that they had agreed a 90-day truce in the trade war. That directly addressed one of the main worries burdening consumers.

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The Capital University consumer confidence index includes six sub-indicators that cover economic development, employment, product prices, household spending, property and investment. Confidence levels in product price and property were below 100, helping to drag the overall index down.

Confidence in real estate, the most popular investment among Chinese consumers, was among the weakest, declining to 82.5 from 87.7 in the same quarter in 2017, but up slightly compared to 81.7 in the third quarter. The housing market has been hit by lower sales resulting from government restrictions aimed at curbing price growth and limiting speculation.

Chinese consumers have become more cautious about the use of their disposable income and analysts are not painting too bright a picture for 2019 as a result. Photo: AFP

Consumer sentiment on product prices was also lacklustre. The index stood at 81.2 in the fourth quarter, up from 77.9 in the third quarter but below the 84.5 reading in the fourth quarter of 2017.

Investment confidence deteriorated further, with the indicator falling to 84.9 compared with 85.6 in the third quarter in 2018 and 91.8 in the last quarter in 2017.

A major factor behind the drop was the continued deterioration of the Shanghai Composite stock index, which fell by more than 25 per cent last year, hitting its lowest level since the last stock market slump in 2015.

Growth of the world's second largest economy is expected to slow further this year, in the range of 6 per cent to 6.5 per cent, according to most professional forecasts. In the third quarter last year, China slowed to a decade-low rate of 6.5 per cent as pressure from trade tensions weighed on consumer confidence.

"Overall, the downward pressure on the economy is going to be the bigger [in 2019]," said Wang Tongsan, a member of the Chinese Academy of Social Sciences, a government affiliated think tank. Wang said that Beijing is likely to focus on introducing more measures to improve domestic demand.

China's senior leadership has signalled it would consider larger tax cuts for businesses and consumers, as well as increased fiscal spending to navigate economic headwinds and strengthen consumption.

In a report published by the Chinese Academy of Sciences on Tuesday, researchers said that a personal income tax cut introduced last year had not played a "significant role in boosting residents' consumption in the short term". The institution forecast that the nominal growth rate of consumption expenditure would slow this year to 8.4 per cent.

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In addition, slower growth in wages and higher household debt will prevent consumers from spending more, according to Professor Yang Cuihong at the Centre for Foresting Science, the Chinese Academy of Sciences.

In the first three quarters of 2018, per capita disposable income of China's urban residents was 29,599 yuan (US$4332), a real increase of 5.7 per cent from the same period in 2017, while that growth was down 0.9 percentage points on the same period in 2017.

Analysts suggest there may be more stimulus measures in prospect for consumers as Beijing looks to rally its slowing economy. Photo: AFP

Wage growth for rural residents for the first three quarters of 2018 took a hit. The real growth rate was 6.8 per cent over the first quarters of 2018, down 0.7 percentage points from the same period in 2017. Rural residents' average wages in the last three quarters were 10,645 yuan.

Household debt, mostly linked to mortgages, has ballooned by 20 times in the last 16 years. By the third quarter of 2018, outstanding housing loans reached 24.8 trillion yuan.

While Chinese consumption is likely to grow in the long term, slow income growth, inadequate social security benefits and an insufficient supply of high quality consumer goods will dissuade consumers from opening their wallets, according to the Chinese Academy of Sciences.

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"Trump provoked a trade war which has dampened external demand [for Chinese goods]," said Wang. "We need to build a strong domestic market. We need to lift income growth and reform income distribution."

The consumer survey canvassed a total of 3,328 people from 36 Chinese cities between December 15 and 30 last year.

This article originally appeared on the South China Morning Post (SCMP).

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