China’s middle-class families hesitant to spend despite government efforts to stimulate economy

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27th May 2024 – (Chengdu) Despite the Chinese government’s persistent efforts to encourage consumer spending, particularly in the real estate sector, middle-class families in China are showing a marked reluctance to open their wallets. This trend was vividly outlined in a recent study conducted by Southwestern University of Finance and Economics based in Chengdu, Sichuan Province.

The university’s quarterly “China Household Wealth Index Survey,” revealed a significant drop in the index of families’ future spending expectations. This index, which helps gauge consumer sentiment about future spending, declined to 101.9 in the first quarter of the year, from 103.0 in the previous quarter. Notably, this figure is even lower than during the early stages of the COVID-19 pandemic in the second quarter of 2020, which registered at 102.6.

The survey, which measures the spending plans of households averaging 1.5 million yuan (approximately $207,000) in combined property and financial assets, indicates a cautious outlook among consumers. The average household income among respondents stood at 170,000 yuan.

Despite a reported 5.3 per cent year-on-year growth in China’s GDP in the first quarter, with domestic consumption contributing significantly to the economy, the details reveal a more nuanced picture. Retail sales of consumer goods increased by 4.7 per cent, yet spending in discretionary areas such as travel and entertainment has barely risen above pandemic levels.

A particularly stark indicator of consumer caution is the real estate market. The proportion of households planning to purchase new homes dropped to 6.4 per cent in the first quarter from 7.5 per cent at the end of 2023. Furthermore, investment in the real estate sector has seen a notable decline, falling 9.8 per cent year-on-year in the first four months of 2024.

The survey also highlighted a broader economic sentiment, with 62.3 percent of respondents expressing pessimism about the economic outlook over the next 12 months, although this is a slight improvement from the previous quarter’s 66.4 percent.