China’s factories are back, but their consumers aren’t

Job losses and pay cuts have made shoppers reluctant to spend again

BEIJING— An unemployed young college graduate has stopped buying new sneakers. A clothing store clerk gave up his gym membership. An events planner, his pay cut by four-fifths, now moonlights as a takeout delivery driver — and can no longer afford to eat out.

China, the world’s secondlargest economy and a key driver of the global growth engine, has a big problem with its spenders. Until it can be solved, the country’s growth — and, by extension, the world’s — will be difficult to rekindle.

As the coronavirus outbreak ebbs in China, the country’s companies and officials have made big strides in restarting its economy.

Its factories, brought to a standstill when the coronavirus outbreak swept through the country in January, are humming again, and even the air pollution is coming back. Empowering consumers could be the tougher task. Many lost their jobs or had their pay slashed. Still others were shaken by weeks of idleness and home confinement, a time when many had to depend on their savings to eat.

For a generation of young Chinese people known for their American-style shopping sprees, saving and thrift hold a sudden new appeal.

Chloe Cao, a Beijing translator of French stage dramas, once spent more than $200 (U.S.) a month in restaurants, $70 a month in coffee shops and as much as $170 for a tube of imported face cream. Now unemployed, she cooks for herself, brews her own coffee and buys $28 Chinese face cream.

“My spending power has suffered a cliff-like drop,” Cao said. “When I find a job, I will start saving money, and I can’t live a wasteful life like before.”

China’s consumer confidence problem offers potential lessons for the United States and Europe, which are only beginning to plan their recoveries. Even if companies reopen, the real challenge may lie in enabling or persuading stricken and traumatized consumers to start spending money again.

By some measures, China’s economy is getting back on track. By the end of February, most of its factories and mines had reopened, according to a variety of data, cranking out everything from steel to cellphones at a blistering pace through March. Industrial output rebounded to a near-record level.

Other measures suggest the Chinese economy is still limping. Retail sales, which stayed strong during past crises, plummeted almost one-sixth in March from a year earlier.

Satellite imagery shows that Chinese industrial areas emitted considerably less light this spring than they did a year ago, in a sign that fewer building sites may be floodlit for 24-hour construction and that fewer factories may be operating around the clock.

Even the factory work that has resumed may not be dependable for long. Customers in the United States and Europe also are not buying Chinese-made goods like they once did. U.S. department stores, for example, have been cancelling and postponing orders.

China’s unemployment statistics — which showed a 5.9 per cent urban unemployment rate in March — are notoriously unreliable. Larry Hu, an economist at Macquarie Securities, an Australian investment bank, estimates that China’s urban unemployment rate will nearly double this year. True unemployment may be as high as 20 per cent if migrant workers from rural areas are included, according to one estimate from Zhongtai Securities, a Chinese brokerage.

Overall sales of furniture, clothing, household appliances and jewelry each plunged by a quarter to a third in March compared a year earlier. On the street and in malls, many stores have plenty of clerks and some window shoppers, but few actual buyers.

Liang Tonghui, a 40-year-old from central China’s Henan province, stood recently at a nearly deserted fruit stand in Beijing, trying to sell peaches and apples.

Almost all the other migrants he knows are struggling to find work. He sells apples for 40 per cent off at the end of each day because he cannot find fullprice buyers.

“If half the people are not coming to work,” Liang said, “what do you think is the number of people coming here?”

China needs to kick-start consumption because the old ways to juice its economy don’t work like they once did.

After running up huge debts to pay for new high-speed rail lines, highways and other infrastructure following the global financial crisis, China tried to depend more on its consumers.

In an economy that registered nearly a half-century of continuous growth without recording asingle recession, young people in particular became willing to borrow and spend almost like Americans.

A number of economists have called on China to do more to help consumers. While the United States and other countries have unleashed major spending programs that include direct payments to households, China has largely refrained so far, in part because of debt concerns.

Peng Fei lost his part-time job at a clothing store in south-central China that closed during the pandemic. He has responded by halting trips to the gym and cut back on going drinking with friends.

“Before, I’d spend as much as I had,” he said.