Chinese consumers are reportedly choosing to repay debt and buy wealth management products, despite government efforts to get them to spend.
The country’s consumers put less money in the bank in June but didn’t spend that money, Reuters reported Friday (July 19).
“The year-on-year decrease in excess savings growth has not yet translated into increased consumption,” Tommy Xie, head of Greater China research at OCBC Bank, said in a note, per the report. “This may be related to households deleveraging by repaying loans early and shifting deposits to wealth management products.”
The Chinese government has tried to encourage consumers to spend rather than save by cutting deposit rates, according to the report.
However, risk-averse consumers have instead shifted their money from bank deposits to wealth management products, the report said.
Consumers are cautious because China has seen a downturn in property values, a fragile job market, weak social safety nets and higher household debt, per the report.
Bloomberg reported in December that it surveyed 20 middle- to upper-class Chinese consumers and found that they were focusing on saving more money for the future, cutting back on non-essential spending and delaying major purchases such as homes or cars.
The report said that even high earners in the country were concerned about their future job prospects at a time when China was suffering an economic downturn characterized by declining exports, a slowdown in manufacturing and a property slump.
During the second quarter, the country’s economic growth fell to its slowest pace in five quarters.
China’s gross domestic product (GDP) grew 4.7% during the quarter, lower than all but one of 28 estimates in a survey of economists, Bloomberg reported Monday (July 15).
In addition, retail sales climbed at their slowest monthly pace in nearly two years, signaling that the government’s efforts to bolster confidence haven’t had much impact on consumers.
Friday’s report by Reuters quoted a note from analysts at Maybank that said that getting Chinese consumers to spend more will require “structural solutions” to the problems they face.
“Instead of quick-fix stimulus, policymakers would need to address the root causes of consumers’ risk-averse behavior and encourage them to spend their incomes,” the analysts wrote.
