Is Chinese Consumption About to Collapse?

With a number of global companies reporting a drop in consumer demand from China, and others laying off China staff, Forbes’ Gordon Chang writes that it’s time for policymakers and analysts to revisit their expectations for a swift rebalancing of the Chinese economy:

Investors still believe consumption will carry the Chinese economy past its current difficulties. And on the surface, China’s shoppers appear resilient. The National Bureau of Statistics reported that retail sales increased 13.2% in August year-on-year. Moreover, the People’s Bank of China is apparently expecting a stellar National Day. Days ago, the central bank completed the biggest weekly net injection of cash in China’s history—365 billion yuan—to meet expected demand during the week-long holiday.

Yet even official statistics are starting to reveal the slowdown in consumption. For one thing, the current retail-sales figures represent a deterioration from the second half of last year, when growth ranged from a low of 17.0% in August to a high of 18.1% in December. Moreover, current growth rates are also below those in the beginning of this year: the aggregated January-February period clocked in at a still-healthy 14.7%, and March posted a 15.2% gain.

The downward trend in the figures becomes even more worrying when you strip out of them inflation and exclude government procurement and store inventory, which are inexplicably included. The growth of “retail sales” in China, at least as we think of the term, is probably in the low single digits at the moment.