Why can't China get people to spend? - Asia Specific podcast, BBC World Service

China is great at selling its products to overseas buyers, but inside the country, there seems to be a problem. Juliana. That's right Mariko. This has been a problem since the beginning of Covid. But, you know, people just thought, you know what? Let's wait until the economy recovers and exits Covid and see what happens. But since then, things have gotten kind of worse and worse. And this is largely down to property market and a lack of jobs. And the government has been trying to encourage people to buy more products, haven't they?

So today we're asking why can't Beijing get people to spend money? I'm Mariko in Singapore and this is Asia Specific from the BBC World Service. Twice a week we bring you Asia Pacific stories. unpacked by those who know them best. I have two guests who follow the Chinese economy very closely. Juliana Liu is actually a former colleague of mine. She was a Hong Kong correspondent for the BBC,

but now she's a columnist for Bloomberg Opinion's Asia team. Welcome to Asia Specific, Jules. Great to be here. I also have Max Zenglein. He's the Asia Pacific economist at The Conference Board, which is. a think tank and research organisation. Thank you so much for. coming on the pod, Max. Thanks for having me. So we've been talking about China's economic challenges for quite some time. But today we're doing this episode because recent data show. that the economy is growing at the weakest pace in over three years.

So, Juliana, can you maybe paint the picture of the broader trend, some of the issues facing the Chinese economy? We have essentially kind of two things going on. Exports are going absolutely gangbusters. So if anyone on this pod is in the market for a new electric vehicle, depending on, you know, what country you're in, you might have the likes. of BYD or Chery offering it to you at a really, really good price.

At the same time, though, the domestic economy is extremely weak, and people just don't have the kind of the will to really go out. to shop and to purchase as they used to do, certainly as they used to do before the start of Covid. And this is creating some real challenges, not just for policy makers within China, but also for the countries that trade with China, because they're seeing.

their markets being overrun by a lot of Chinese exports. And Max, as Juliana said, the latest data showed exports are still booming. So can you just explain when we're talking about weak consumption, weak spending in China, how weak is it and why is that a problem? I think maybe just for context a bit, this is a structural problem. of China's economy. And it's also nothing new. It just became, I think, more pronounced after the pandemic.

There was this hope that there would be revenge spending and people. just would not return to to old patterns. And based also on, you know, the economy. or the population becoming more wealthy that they would return. to spending. But this has not materialised. And it was basically also left unaddressed and hence has become more entrenched. So the real estate market, which is the key asset class. where people put their money to increase their wealth,

deteriorated. It's been contracting for four years now. Then you have the youth unemployment. And if you're, let's say, if you're a middle aged family, you have your real estate deteriorating, your kids that you sent to university is not getting a job. and you're really feeling the pinch and you're not going to go out. and be a happy spender, especially on big ticket items. So I think this is part of the problem that has been going on. for years now and just yeah, made the problems worse that we're seeing right now. But why is it important for China to see consumer spending money.

and I guess, rely less on trade. You know, the economy is still expanding in comparison. to some other major economies. So I think one. issue would already be because you mentioned what is the problem. It depends on whose problem it is. And I think at the moment, I don't think it's a key policy priority for the leadership in Beijing. They have other priorities.

It's actually strengthening the manufacturing base, it's strengthening economic security as there's more geopolitical tensions. So the domestic side is not so much prioritised. And I think to be fair, it's weak, but it's also not collapsing. But nonetheless, because of the scale of the Chinese economy, it's having. a global impact through the massive exports that we already talked about. And Jules, you recently wrote a column about this, haven't you, about. how Beijing is not maybe putting the priority on boosting consumer spending,

but can you maybe put this in comparison to other major economies, how much consumer spending accounts for the Chinese economy. versus other major economies? Yeah. So I recently wrote about a plan that seemed really exciting on paper. So about two weeks ago, China came out with. its first ever five year consumption plan. Okay, I admit for the non nerds out there, it's not that exciting, but it was the first time we've seen something like this. from China. In terms of why it's important,

I mean, structurally, China's consumption has always been kind of weak. as a percentage of its entire economy. It's about 40%. That compares to 50% for Japan, which is already pretty low. So it's much lower than Japan and way lower than the West. Right? And the reason why it's important is because. if you imagine if people are spending again, that will lift China's own growth. and also make its problems with its trading partners a lot smaller.

So if Chinese shoppers were out spending again, they would be, you know, buying more products from Europe, buying more products from the West, from Southeast Asia, the rest of Asia and the US. And you would expect to see some of these issues become less of a problem. I mean, it's quite ironic, right? Because as you said, a lot of global consumers. outside of China are buying quite a lot of Chinese products. And yet within China, they're not spending as much money.

So what are the products that overseas buyers are actually really keen to purchase from China? And yet within China, those domestic consumers aren't, Jules? People outside China are pretty much buying everything. You know, obviously the big kind of ticket items, cars, electronics, but also stuff that is being sold by Shein and Temu. And Mariko, you must have Gen Alpha children. But my children taught me a new phrase recently,

so they call it, it's from Temu, when something is not very good, something is poor quality. or just generally not good. So it's become a bit of a catch phrase, although to be fair, some of the products are very serviceable. and good enough quality for the price. But you know, I think the fact that this phrase has become very popular. among teenagers and children, I think it shows the extent to which, you know, people overseas, outside China are buying Chinese products.

They're buying a lot of Chinese products, almost everything. So of course, we have kind of the the cheap consumer goods that are maybe not. so great in quality in some case, but still good enough in some cases. But you do have, you know, Chinese goods also moving up the value chain. in some sectors dominating this. We see it in EVs where you have, you know, massive exports and also demand for it. And they're challenging, well, very complacent, traditional car manufacturing brands at the moment.

So they are feeling that. But it does connect also lets say the the scale. of which how this is happening connects also to to the domestic weakness and, e-vehicles is actually a great example. So this is something where China rapidly build up its capacity and capabilities. But the domestic market at the moment is very weak. And the latest numbers that came out for June, it's contracting. and the share of exports, I think for June, it reached around 40% of the vehicles that are produced.

in China that are being exported. So that's where I think, where this weakness comes in. at the moment and entrenched problem of. I think the consumer here is that it has not been the priority. Chinese economic policy prioritises exactly something like building EVs. and leapfrogging into new technologies. But really strengthening consumption is not so much the focus. And as you know, the new five year plan that we all were excited about,

the detail is then disappointing because often when I read China's consumer. or consumption policies, they read like supply side policies. The focus of the last plan that we're talking about. What's interesting in it, it seems to focus. on improving the quality of products. But I would argue that that's really not the right way to look at it because, you know, despite Gen Alpha around the world saying things like it's from Temu, actually Chinese products quality wise, have indeed come a long way.

And within China itself, I don't think people aren't shopping. because they don't think the quality is good enough. And in fact, I think there's a lot of really great quality products out there. And EVs are just one area, but also fashion, handbags, cosmetics, you know, I write about and I try these things. and I think actually the quality often is really good. But in terms of specific measures to boost demand, to get consumers to spend money, what are the policies that you could suggest,

Max, maybe, you know, if you were to be advising the Chinese government? A typical approach would be to give subsidies or vouchers. But again, this is a short term impact. that really benefits the suppliers. So the production and not so much the consumer in the long run. If you're still struggling with your kid not finding a job. in your real estate losing value. and you know, it goes really into the boring stuff.

and also the really hard stuff to fix in the economy. And that is fixing retirement, social security, these type of issues that are a massive undertaking. And this has been, you know, in the books for China for quite some time, but they've been kicking down the can. I think the thinking was China develops, gets more wealthy and these will magically go away. And now we're at a point where this is not happening. and the external impact is becoming much more pronounced. Do you think given the spotlight on this weak consumption,

is it going to become Beijing's priority? Or judging from this latest plan that we've been talking about, where it seems like they're not even expecting. consumer spending to grow as much as in the previous five years. Does that mean that Beijing still doesn't see it as a priority, Juliana? We see that exports are very, very strong. And this is part of a grand plan in terms of China really moving massively,

moving up the industrial kind of supply chain. There's a huge focus on technology and AI. And the industrial side of things. So as long as that side of things is going and it is for the moment, I think it actually gives, you know, the government some breathing space. I think if we start to see exports fall off, I think China will then will have no choice really, but to undertake some of these difficult,

boring, expensive policy changes that it would need to to undertake. in order for then, for people to start spending again. And Juliana touched on this slightly earlier. But Max, if you can just explain why, you know, for viewers and listeners. outside of China, why should the rest of the world care. that Chinese consumers aren't spending as much money? How does it affect the rest of the world? You as an individual might think, what's the problem?

It's fantastic, my phone is cheaper. My laptop is cheaper. My whatever is cheaper. Everything's getting cheaper. That's great for you as an individual, but as the entire economy, it will erode the industrial base in the foundation. of the country you're living in. And I think that's a problem. And I think there's a lot of attention to at the moment. It's for the automotive sector in Europe, how they're struggling. with Chinese EVs that are good and quality, cheap in price.

But it's not only a story for, you know, the richer countries. If you think about in Southeast Asia, actually, Indonesia has been one. of the countries that has been making one of the most trade complaints. against China because it's been affecting their textile industries, their metal industries. So this is something that you as a consumer might be benefiting from. But, you know, if the jobs in the. in the industries in your country become affected by that, that's a problem.

Jules, Max talked about, you know, the frustration. of those middle class in China not hit that kind of tipping point. Do you foresee that happening in the future? And, you know, as Max asked, when it. when Beijing actually has to address wheat consumption issue. by boosting household income and so on, do you think they can do it? I feel like the pressure, if it comes, will be external. It will be, you know, big and small trading partners complaining.

Max is absolutely right. The impact will differ depending on the country. For rich countries it will the impact will be different than. for kind of middle income countries, because a lot of countries, especially in developing areas, they also want to climb up the value chain. That's kind of a technical way of saying that they also want to have factories produce. They want to be competitive eventually against Chinese products. And if China is flooding its products everywhere, then they will have less opportunity to do that.

And I do believe China has the ability to change. It can, it's just, it doesn't need to right now because exports are doing well. But absolutely, Max has put it really, really well. There are a lot of things that China can do. It's been great to get your thoughts on this ongoing issue. Thank you so much, Juliana and Max. You've been watching Asia Specific. from the BBC World Service with me, Mariko Oi in Singapore. If you have any questions or thoughts on what we covered in this episode.

or any other stories from the region, please leave us a comment below. You can also get in touch with us on email asiaspecific@bbc.co.uk. and click like and subscribe so you never miss an episode. See you next time.