BEIJING: Despite multiple challenges posing questions about sustained economic recovery in China this year and beyond, economists remain sanguine and aver it would probably be a big mistake to forget the country was the only major economy in the world that posted positive growth last year in spite of the Covid-19 pandemic.

       What’s giving them confidence is their conviction that China’s consumption recovery story is largely intact.

       First, about the challenges, which seem to abound: loss of steam on the exports front due to reopening of developed economies; resurgence of Covid-19 cases due to the Delta variant; recent heavy rains that wreaked socioeconomic havoc in certain key parts of the country; structural problems like a slowdown in population growth; high housing prices; low-income groups facing difficulty due to struggling small businesses whose hiring is at lower levels; surge in raw material prices that hurt the manufacturing sector; and offline consumption like travel that cannot simply be moved online.

       “The heavy rains and the Delta variant are limiting offline consumption. Not every type of offline consumption can be replaced online. For example, domestic travel can’t be replaced,” said Iris Pang, chief China economist at Dutch bank ING.

       The global supply chain has been recovering on the back of better control of the Covid-19 pandemic overseas.

       This factor could weigh on China’s surging exports. Also, the nation’s strong investment in property development will soften due to tougher government policies to stabilise housing prices, added Pang.

       Yet, most economists and business leaders argue that consumption is estimated to account for as much as about 60% of full-year gross domestic product (GDP) growth (China’s GDP is projected by the International Monetary Fund to grow by 8.1% this year).

       China’s consumption recovery will sustain, no matter what. That’s the consensus among experts who are pleased that positives abound too: the overall employment situation is stable; the mass vaccination has helped anchor consumer confidence; surging industrial profits bode well for household income; policies supportive of consumption may come to fruition; and new forms of online consumption are becoming popular.

       What’s more, unlocking domestic demand is central to the “dual-circulation” development pattern, which takes domestic circulation as the mainstay while letting domestic and foreign markets support each other.

       Hu Zuquan, a macroeconomic analyst with the State Information Center (SIC), a Beijing-based national policy advisory body, said: “China is a super large market with a population of 1.4 billion, a middle-income group of more than 400 million, and per capita GDP exceeding US$10,000 (RM42,296). It still has huge, multi-tiered potential for consumption upgrade.”

       With positives and challenges seemingly hanging on either side of a balance, policymakers, economists and business leaders have stressed the need for stepping up policy efforts to boost domestic consumption. Both short-term policy easing and longer-term reform measures would be in order, they said.

       It is critical to ensure the recovery in consumption keeps a good shape and powers China’s economy, Cheng Shi of ICBC International said.“The growth engine of the Chinese economy is transitioning from external demand to domestic demand. Risks and challenges cannot be ignored in this process,” said Cheng.

       “Consumption is recovering, albeit at a lackluster pace. But consumption remains a key engine of China’s economic growth.”

       So far this year, China registered a recovery in consumption, but it is yet to return to pre-Covid levels.

       For instance, in the January-July period, the country’s retail sales grew by 20.7% year-on-year and by 4.3% on a two-year average basis, the National Bureau of Statistics (NBS) said.

       “There is still room for further recovery in consumption,” said Wu Chaoming, chief economist at Chasing Securities. Consumer confidence is brightening as the vaccination rate rises, and household incomes will further recover as corporate earnings improve, he said.

       The profits of China’s industrial enterprises above the designated size, which serve as a leading barometer of personal disposable income, have rebounded since the second quarter of last year. In the first half of this year, they rose 20.6% on a two-year average basis, the NBS said.

       As Covid-19 disrupts the order of offline spending, online consumption scenarios have been emerging at a fast clip. For instance, Chinese short-video platform Douyin has launched a series of online concerts this month that charged the audience.As a result of such innovations, the nation’s online retail sales surged by 15% on a two-year average basis in the first half, outpacing the 4.4% for total retail sales, official data showed.

       The room for future consumption recovery, however, may remain constrained by the difficulty faced by low-income groups.

       For instance, rural migrant workers’ incomes have not received a boost for a while as many smaller businesses are under the pressure of inflated costs and hence reluctant to hire new employees, Wu said.

       Employment in the manufacturing sector has contracted slightly for four months in a row as of July, while the purchasing prices of raw materials used by the sector have risen sharply or substantially each month this year, according to an NBS survey.

       Other negative factors may also sustain, Wu said.

       These include the drain on disposable income by spending on housing and the asymmetry in economic development in northern and southern areas of the country. — China Daily/ANN