Expect Household Consumption to Weaken in China

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Household consumption is held out as the great hope for China’s future economic growth. The Conference Board China Center’s Inaugural Quarterly Consumption Update reviews the key drivers for household consumption. It identifies a range of key indicators that provide valuable insight on the direction of household consumption trends and paints a broad picture of declining consumption trends. Among the report’s key insights:

—Debt repayment burdens are biting into the cash flows of Chinese households and constraining their ability to consume.

Household Debt, debt service payment and DS ratio 

In Q2 2019, household debt service payments grew at 16.8% year-on-year while per capita household disposable income grew at 8.9%.

Calculated on a comparable international basis, the Debt Service Ratio for Chinese households has risen to 10.4% at the end of Q2 2019. Just before the global financial crises of 2008, DSR in the US was 11.4%. However, in reality certain conditions such as rollover rates differ in China, so the true DSR could be significantly higher. 

—Households are becoming more cautious in their borrowing and increasing their savings. In a significant recent change in behaviour, household deposits grew by 60% in H1 2019. Total household bank loans grew by only 4.3%, with short-term bank loans to households falling by 9.1%. 

—A negative employment PMI indicates continuing slowdown in aggregate household consumption over the next six months. The employment sub-index of the Purchasing Managers Index (PMI) has historically been a reliable six-month leading indicator of disposable income growth. Household income growth is the major driver of household consumption. The China NBS employment PMI is in negative territory and continued to decline in Q2 2019. 

—Consumer Confidence remains strong, but this belies current behaviour. The Q2 2019 Conference Board Consumer Confidence Index for China was 115, up from 113 in Q2 2018. High consumer confidence is arguably serving to buoy consumption that would otherwise slow more significantly. 

“Anecdotal market evidence indicates that households are becoming more conservative in the face of a rising debt service burden. This dynamic is now becoming clear in the data,” said Leo Austin, Senior Adviser to The Conference Board China Center and co-author of the report. 

“The Conference Board’s China Center for Economics and Business has been at the forefront of providing insights for what’s ahead for the China economy and business environment since 2006. This new report series provides a unique toolbox of indicators for accurately understanding consumption dynamics in China and making better business planning decisions thereby,” said David Hoffman, leader of The Conference Board in Asia. 

About The Conference Board China Center for Economic and Business

The Conference Board China Center provides relevant, practical and readily useful business environment and economic insights to senior executives of member companies to help them improve strategic planning and business performance. Insights are informed by pioneering local economic and business research, formulated by our thought leaders in China and around the world, and delivered through our exclusive Conference Board events, publications, indicators, and peer-group CEO Council sessions in China.

About The Conference Board 

The Conference Board is the member-driven think tank that delivers trusted insights for what’s ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org.