China needs to boost consumption at home

Unloved Hong Kong and mainland stocks are having a revival of late. That is mostly because people are seeing green shoots in China’s beleaguered economy. Hopefully, they will not be disappointed this time. The latest data offers some room for cautious optimism. Boosted by demand from emerging markets and shipments of manufactured items, especially electric vehicles, China’s exports rose by 1.5 per cent from a year earlier to US$292.5 billion in April, compared to a 7.5 per cent decline in March.

Granted, it was off a lower base for comparison from the March contraction, but global demand is picking up despite serious trade friction with the United States and, increasingly, with the European Union.

China is having its own version of “de-risking” as markets in emerging economies help to take up the slack. Shipments to Asean countries rose by 8.15 per cent in April year on year, thereby continuing a trend of outperformance for exports to emerging markets. Meanwhile, exports to the US and the EU fell by 2.8 per cent and 3.57 per cent, respectively, during the same period.

Chinese imports jumped by 8.4 per cent from a year earlier in April, compared to a 1.9 per cent fall in March. Domestic demand has been boosted by ongoing policy support from Beijing. A pickup in electronic and hi-tech imports saw double-digit growth.

Beijing’s focus has been on sustaining the momentum in domestic demand. That is in the right policy direction. Given the worsening geopolitical tensions with the US and some of its allies, as well as global economic headwinds, China will need strong domestic demand to get its economy back on track.

It will not only be the key driver of growth this year, but also for the long haul. This means economic reforms must continue to support a vibrant and sustaining middle class. An expanded social welfare safety net to provide better protection for ordinary citizens and their families is needed. China must avoid the debt-driven consumption typical of the US, which has been the source of repeated market crises amid a collapsing middle class. It is imperative that China boosts domestic consumption the correct way.