- After many years of stability, consumer confidence in China has fallen to a historic low in the last two months. This dramatic degree of decrease in confidence has not been seen even when the Covid pandemic first hit China in early 2020
- China’s GDP only grew at 0.4 percent in Q2, 2022. It is very likely that China’s economy will incur near zero growth again in Q3 based on current trajectories.
- The August stimulus package is proving insufficient to turn the economy around. It is mostly targeted toward public infrastructure spending and lacks the needed support measures to revive consumption.
- If the Chinese government does not deviate from its Zero Covid course, China could possibly even run into an economic recession for the first time in decades.
- This could mark a new era: Except during the first covid lockdown, when the economy shrunk by 5 percent in Q1 of 2020, the Chinese people have been used to a minimum of more than 5 percent growth, often going into the double-digits.
- Even if Zero Covid policies are lifted or significantly relaxed in the near future, the Chinese government will have a very difficult task restoring consumer confidence.
- The overall consumer confidence deterioration may in fact not be short-term. Households have a markedly more pessimistic view regarding the long-term prospects of the economy and, consequently, their individual income expectations. This cannot be easily reversed by temporary stimulus packages.
Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.