Coronavirus News Asia

Don’t expect China’s consumers to bail out the world

Chinese consumers have a reputation for deep pockets and broad shoulders.

During the Great Recession, the global economy was propped up by their spending power after the 2008 Financial Crisis threatened to rip it apart. But this time, the “US$4.9 trillion-force” could buckle under the strain of the Covid-19 pandemic.

“Debt has always been a concern hovering [around] the Chinese economy. For [a] long [time], the goose that laid the golden eggs has been abundant household savings and the low indebtedness, but things have changed,” Natixis, the French corporate and investment bank, stated in a report entitled Covid-19 Uncovers China’s Household Debt Accumulation And Its Risks.

“Household debt grew from 28% in 2011 to 55% in 2019 as a share of GDP [gross domestic product] with an average yearly growth of 19%. The coronavirus outbreak has only exacerbated an existing problem,” the study released last week and compiled by Alicia Garcia Herrero, Jianwei Xu and Gary Ng said.

Right now, cash-strapped Chinese consumers are not what the world is looking for. More than 1.8 million people across the planet have been infected by Covid-19 with the death toll edging past 114,000.

Business activity has barely registered a heartbeat, while the word lockdown has become part of the lexicon of life. In response, global governments have injected $8 trillion into the system to prop up creaking economies.

Still, the International Monetary Fund has warned that the world could be facing the deepest peace-time recession since the 1930s. A report by JPMorgan Chase, the investment bank, has also suggested that dwindling output could wipe out $5.5 trillion, or almost 8% of GDP, by the end of 2021.

Hardly surprising then that all eyes have turned to the Chinese consumer. At home and abroad, the country’s middle class has become a giant cash machine. But that was before debt caught up with “household” spending.

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