Can Chinese consumers replace those in the United States?
Investing.com — Chinese consumers could, in theory, absorb the shock of a collapse in exports to the United States, but only with far more government support than policymakers currently appear willing to provide, according to analysts at Capital Economics.
“Retail sales in China are more than ten times the country’s exports to the United States,” the firm noted, suggesting that a modest 4% increase in domestic goods consumption over two years would be enough to offset the likely RMB 2 trillion hit from US tariffs.
However, “this would require policymakers to increase fiscal transfers to households well beyond what they have announced so far.”
Retail sales rose 5.9% year-on-year in March, a 14-month high, but Capital Economics warned that this gain was “largely” due to a consumer goods recovery program. "While it could have a significant impact on the composition of consumption, it only increases household purchasing power by the amount of the subsidies themselves," the firm said, adding that this year's RMB 300 billion in recovery stimulus represents just 0.2% of GDP.
The firm noted that real income growth declined in the first quarter, and without larger fiscal transfers, it sees little chance of a rebound.
A decline in household savings could offer another path to stronger consumption, but this would require "households to become more confident about their finances," which could depend on a recovery in property prices, according to Capital Economics.
"If house prices remain under pressure and the trade war weighs on general confidence, then it will be up to the government to convince households to reduce their precautionary savings," the firm said.
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