China bets its economic future on consumers, and they aren’t spending

CHINA’s economic slowdown spilled over to consumers and home buyers last month in a turn that economists said points to difficulties ahead, even as the government tries to bolster growth by boosting infrastructure investment.

Spending on automobiles, staple foods and other consumer products grew at the slowest pace in five months in October, while growth in property sales was its slackest in a half-year, according to official data released Wednesday. Meanwhile, central-bank data released Tuesday showed the amount of new bank loans fell lower than forecasters’ expected last month.

All told, the softer consumer spending and the reduced loans suggest that demand may be weakening, some economists said, adding further drag to an economy that was already slowing.

“Slowing consumption is concerning and could create down- ward pressure for economic growth in the fourth quarter,” said Liu Xuezhi, an economist at Bank of Communications.

Beijing has been trying to nurture consumption as its new growth driver, steering the economy away from reliance on investment. Officials have recently emphasised Chinese consumers’ huge purchasing power as a reason to be optimistic about the economy.

China’s economy has been on a downward glidepath for months, partly due to the bite of a government crackdown on risky financing and fears about the trade fight between China and the US Jitters have battered the yuan, which is down nearly 6.7% for the year and domestic stock exchanges, with the Shanghai Composite Index 25% off its January high.

To get things going, Beijing has urged more lending to private firms, reduced some taxes and turned to infrastructure spending. The spending effort is starting to gain traction.

Investment in roads, buildings and other fixed assets, outside rural households, climbed 5.7% in the January-October period from a year earlier, Wednesday’s data showed. It was faster than the 5.4% increase recorded in the JanuaryOctober period. Investment in railroads and other infrastructure projects, which dropped earlier in the year, rose 3.7% in the first 10 months, compared with 3.3% growth of the first nine months.

Still, consumers and businesses selling everything from cars to buildings materials have been sounding gloomy, a mood born out in October’s figures. Liu Xinzhi, a sales manager for electronics retailer Beijing Mingbo Jiye Scientific & Technology Co, said that new clients are hard to come by and that the company is reliant on government procurement for computers and printers.

“You saw on the news about all these preferential policies to help out small firms, but we don’t really feel it. We are just barely staying alive nowadays,” Liu said.

Retail sales rose 8.6% in October from a year earlier, slowing from a 9.2% on-year gain in September, and while automobiles have been slowing in recent months, a broader range of consumer products – such as stationary and jewellery – also slowed sharply.

While e-commerce giants, including Alibaba Group Holding Ltd, reported huge sales for Singles Day this month, a Chinese analog to Cyber Monday, a spokeswoman for the National Statistics Bureau said the event likely siphoned some demand from October.

Housing sales rose 9% last month from a year earlier, compared with an 11% gain in September, a drop that some economists and analysts attributed to restrictions on purchases governments imposed over the past two years, when prices and sales were soaring.

“Weakening property market is probably the biggest uncertainty for the economy next year,” said Ning Zhang, an economist at UBS. In a likely ripple effect, retail sales of home appliances and furniture slowed in October.

Building materials supplier Beijing Straight Mortar Technology Development Co is feeling the pinch. Sales manager Li Qiang said new clients have been scarce in recent months.

“A slowing property market definitely is hurting our sales,” said Li, who has been selling building materials for six years.

Also weighing on the property market is a government plan to scale back a programme that offered subsidies to rural Chinese to buy homes in urban areas, increasing demand in smaller cities.

The trade battle with the United States appears to be giving some sectors an unexpected boost, as Chinese businesses rush out orders to get ahead of US tariffs.

Value-added industrial output rose 5.9% in October from a year earlier, accelerating slightly from a 5.8% on-year increase in September. Zhang of UBS said some of that gain likely reflected a front-loading of orders. — WSJ