About That Rebalanced Economy . . .

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One of the “must do” goals these days is to shift China’s economy from being export based to being consumption based. This has been a goal for many years, as pushed by academics, but has not really been taken all that seriously by the government until recently.

The Great Recession has emphasized, in a particularly nasty way, why being export dependent is a bad thing. So the goverment is now spending quite a bit on projects aimed at domestic production and local spending. Sounds good, but how are the folks at home responding?

This is not promising:

Shanghai consumers are spending less for the first time in a decade even as they are making more.

Per-capita consumption fell 3.1 percent to 5,004 yuan (US$733) in the first quarter compared with the same period last year, the Shanghai Statistics Bureau said yesterday on its Website.

The downturn signaled a cautious attitude among consumers as the financial crisis continues to rattle confidence.

“The spending decline was in line with the macroeconomic trend and the Consumer Price Index,” said Xu Jin, an analyst at Shanghai Securities Co.

“We expect consumer confidence to recover in the third quarter, but the outbreak of swine flu has added uncertainty to the situation as it may greatly dampen spending on travel and food,” Xu said.

The biggest drop came in spending on transport and travel. (Shanghai Daily)

It’s tough to get people to spend money during a recession, isn’t it?

3 responses on “About That Rebalanced Economy . . .

  1. Thomas

    Strangely, China’s Q1 GDP release tells us that retail sales are booming. So either Shanghai has completely “decoupled” from China’s overall economy (which is of course a possibility, but -3 % in Shanghai vs. +15 % in China overall sounds a bit too extreme to be explained by simple regional differences), or there is a statistical inconsistency here…

    1. Stan Post author

      You’re right to point out this inconsistency. Retail numbers have been in fairly good shape during this whole recession, which seems a bit strange. The fiscal stimulus cannot explain it, and the spike in unemployment, the drop in the real estate market, and the volatile stock market should all point to some sort of dip.

      I think there is a lot more going on with these numbers that we don’t know about.

  2. Thomas

    Just noticed that the Shanghai Daily article links to another Shanghai Daily article. This second article tells us that Shanghai retail sales are up 14 % yoy.

    So apparently, retail sales are up 14 %, but consumption dropped 3 %. How does that go together? Chinese statistics never cease to amaze me…