With consumer spending and investment leading the way, the world’s second largest economy, China, is bouncing back from a crisis amid the coronavirus pandemic. After months of slower growth caused by the global pandemic, data from the National Bureau of Statistics shows that as of the first quarter of 2021, China’s GDP was up 18.3%. This 16.1% increase in growth is the highest rate of growth seen in the last 30 years, with consumer spending and the trade balance leading the way.
The Effect of the Global Pandemic
The world has been affected by the global pandemic in different ways. China was one of the hardest hit countries early on, and it’s economy was most affected. China’s GDP had dropped as low as 6.5% in 2020 due to the pandemic, which was its worst performance since 1976. This led to massive job losses and job insecurity, a decrease in consumer spending, and a decrease in exports.
What Made the Difference
In the past few months, Chinese citizens have been relying on tech investment to drive their economy back up. Online portals and services like Alibaba, JD.com and the People’s Bank of China had a lot to do with the recovery in China’s economy. We’re also seeing a surge in domestic consumption, as people start to feel more confident and secure in their jobs.
The Benefits of Stimulus
The Chinese government has also implemented a robust stimulus package to help encourage the economy. This package was worth an impressive 4 trillion Yuan, or 4.8 trillion US Dollars. They have made a huge investment in infrastructure, healthcare, new industries, green energy, and other growth related sectors to bring about steady, sustainable growth.
Consumption: The Superstar
Consumption has been the main driver in China’s economic recovery. In the first quarter of 2021 alone, domestic consumption contributed 70.2% to economic growth. Vehicle sales are up from 2020 by 18.1%, and offline retail sales have jumped 11% year on year. This has helped to keep the economy afloat and given consumers more spending power.
Retailers & Luxury Goods
The early effects of increased consumer spending are well documented. Luxury retailers have seen a huge rise in sales, as luxury goods are becoming increasingly popular with younger generations. Within the first quarter of 2021, luxury goods sales in China have risen by more than 30%. Fur coats, leather goods and designer-label handbags are quickly becoming must-haves.
Online & Offline Purchases
The surge in domestic consumption can be seen in both online and offline purchases. Online purchases made up 40.1% of total retail sales between January and March, while offline spending was up by 10.5%. Consumers are flocking to online and offline stores to shop, while online influencers are helping to boost sales of luxury goods and other merchandise.
Rising Wages & Disposable Income
Disposable income has been on the rise as Chinese citizens gain access to higher paying jobs. Wages have increased by an average of 6.8% in 2021 and are expected to reach 8% by the end of the year. This encourages spending, as people now have more money to spend on luxury goods, travel and leisure.
China’s economy is now firmly on the recovery path and looks like it will continue to grow at a rapid pace. The main driving force has been consumption, as more people take advantage of the robust stimulus package, rising wages and a surge in online and offline retail sales. The world will be eagerly watching to see if this trend continues as we enter the second quarter of 2021.
