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China consumer confidence reflects deepening gloom as world’s most populous nation grapples with zero-Covid, property crisis

By Fitri Wulandari

Edited by Georgy Istigechev

16:01, 28 October 2022

Traffic passes the Drum Tower during rush hour in Beijing
Consumer confidence in China has been registering near historic lows as the country’s economy reels from zero-Covid policies – Photo: Kevin Frayer / Getty Images

China’s consumer confidence has been hovering near historically low levels as recent indicators showed the country’s economy was weaker than at the peak of the Covid-19 pandemic in 2020.

Weak economic activity, which was partly self-inflicted by the country’s zero-Covid policies, have continued to dent consumer confidence in China.

Will Chinese consumer confidence rebound in 2022 and beyond?

What is consumer confidence?

Consumer confidence is a measure of consumers' optimism or pessimism about current economic conditions and future economic prospects. It also assesses their perception of their financial situation.

It is a vital economic indicator because private consumption accounts for roughly two-thirds of economic activity in most countries. Household consumption fluctuations can have a broader impact on businesses, such as retail stocks and commodities.

The rise and the fall of a consumer confidence index can have a knock-on effect on a country’s monetary policy. Falling confidence may force the central bank to slow the pace of rate hikes or cut the policy rate to spur spending. Central banks could also step up their interest rate hikes to mitigate inflation risks if spending rises.

China’s National Bureau of Statistics produces the China consumer confidence index, which is based on a poll of 700 individuals over 15 years old from 20 cities across the country. 

The index assesses consumer confidence in China on a scale of 0 to 200, with 200 indicating extreme optimism, 0 suggesting extreme pessimism and 100 denoting neutrality.

Other research institutions, such as Ipsos and consulting firm McKinsey & Company, also produce China’s consumer confidence surveys.

Chinese consumer confidence history

Consumer confidence in China had stayed relatively high of above 120 points between 2020 to March 2022, data from TradingEconomics showed. Even in the beginning of Covid-19 pandemic in China, where the disease originated, consumer confidence dipped, but was still above 110 points.

China’s economy had proved to be resilient during the pandemic. In the third quarter of 2020, the PRC’s economy rebounded to 4.9%, after a 6.8% contraction in the first quarter, according to China’s National Bureau of Statistics (NBS). The country’s growth jumped to 18.3% in the first quarter before cooling down in the following quarters.

China consumer confidence index 2012 - 2022

In February 2021, China’s consumer confidence hit an all-time high of 127 points and stayed above 119 points until February 2022, according to TradingEconomics data. In March, consumer confidence in China dropped to 113.2 points as fresh Covid-19 outbreaks started to spread in the country. The indicator plummeted to a record low of 86.70 in April 2022 as the government ramped up restrictions.

China consumer confidence recovered to 88.9 points in June, before easing back to 87 in August, according to Trading Economics.

Factors driving the China consumer confidence index

Let’s take a closer look at the main factors driving worsening consumer confidence in China.

Growing doubts about the economy's recovery

A consumer confidence survey conducted by consulting firm McKinsey & Company showed that the share of respondents who were optimistic about China’s economy had dropped in the past 10 months.

China’s gross domestic product (GDP) grew by 3.9% in Q3 2022, rebounding from 0.4% in the second quarter of 2022. However, it was still below 4.9% in the third quarter of 2021 and 4.8% in 2020, according to the NBS.

All other economic indicators in the third quarter ended September, including retail sales that slowed 2.5%, pointed out that China’s economy was still weak.

As of August 2022, about 49% of respondents in the McKinsey survey were confident that the economy would rebound in 2-3 months after the pandemic and grow as strong as before. It dropped from 67% in the October 2021 survey, McKinsey’s poll showed.

The share of respondents who thought that the pandemic would have a long-lasting impact on the economy and show regression or fall into recession jumped to 14% in August from 1% in October 2021.

A consumer confidence survey by research firm Ipsos conducted in October showed China recorded a significant drop of at least 1.5 points in their Expectations Index, which indicates consumers’ attitudes about their future financial situation, local economy, and jobs environment.


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Uncertainty about the end of Covid-19 restrictions

While most countries have lifted their Covid-19 restrictions, there is no sign that China will abandon its grip on its zero-Covid policy. Investors and consumers were doubtful that the strict policy will be lifted anytime soon, particularly as President Xi Jinping was reinstated for his third term as the head of China’s Communist Party on 22 October.

Corporates and investors were disappointed that the National Party Congress recent October meeting did not discuss a stimulus plan to help the economy and did not provide a timeline for when the zero-Covid policy will end, Jefferies analysts wrote in a note on 24 October.

“While this does not mean there will be no relaxation when there are fewer C-19 cases or no policy to address weak consumer sentiment in 2023, short-term market/consumer sentiment is bleak,” wrote Jefferies’ equity analysts Anne Ling, John Chou, Boya Zhen, and Lisa Liao.

Cities in China have tightened up Covid-19 restrictions by closing off buildings and locking down districts  as the country reported 1,000 new cases for the third straight day, Al Jazeera reported on 27 October.

China consumer confidence and GDP forecasts

TradingEconomics forecast the China consumer confidence index to trend at 86 points by the end of Q4 2022, rise to 120 points in 2023 and edge lower to 110 points in 2024, according to the platform’s econometric models.

Regarding the overall economic outlook, analysts expected China’s economy to rebound next year. However, the country’s strict Covid-19 restrictions could limit any upside following the appointment of President Xi as party leader for the third term. In addition, the economy in the US and Europe – the main destinations for China’s exports – were projected to slow or even enter recession in 2023.

“Keeping in mind that it was Xi who allows more flexibility in Covid policy after Shanghai's long lockdown back in March-May, there is possible further flexibility, e.g. what we have heard from the media is the debate on the number of quarantine days for foreigners entering Mainland China,” wrote ING Group’s Chief Economist for Greater China Iris Pang on 24 October.

CHINA`S GDP (2012-2022)

The above figures are in billions of US dollars.

ING forecast China’s GDP to grow by an average of 6.2% in 2023 – a rebound from an estimated 3.6% figure in 2022.

ABN-Amro lowered its forecast for China’s growth for 2022 to 3.5% as of 27 October, from 3.7% in the previous estimate in September.

The Amsterdam-based lender cut its China’s growth projections as it did not expect a quick turnaround in its Covid-19 policy following the Party Congress and with global growth set to come down, said ABN Amro’s senior economist Arjen van Dijkhuizen on 24 October.

In its quarterly economic outlook, the Asia Development Bank (ADB) cut its projection for China’s growth for 2022 to 3.3% from the 5% figure cited in April due to Covid-19 restrictions and tepid demand. The agency also revised its estimate for China’s GDP in 2023 to 4.5%, down from a previous forecast of 4.8%.

The ADB said in a statement on 21 September:

“The Covid-19 pandemic continues to weigh on consumer confidence in the PRC, while an ailing property sector is holding back investment. External trade is projected to moderate in the second half of 2022, as demand for consumer goods softens in advanced economies amid rising inflation and energy prices.”

ANZ Research projected the country’s growth to come in at 3% in 2022, rebound to 4.2% in 2023 and keep largely steady at 4% in 2024.

“Local health authorities have maintained their zero-COVID approach after the Party Congress. The number of medium- and high-risk areas have surged in recent weeks. The consumption outlook remains sombre,” said ANZ Research Chief Economist for Greater China Raymond Yeung and Senior China Strategist Zhaopeng Xing.

The bottom line

Analysts mentioned in this article did not expect China’s economy to rebound as strongly as during the Covid-19 pandemic in 2020 and 2021. The country’s strict restrictions to curb Covid-19 and slowing global economic growth were likely to cap growth.

It should be noted that analysts and algorithm-based forecast websites can be wrong in their predictions. Forecasts should not be used in place of your own research.

When trading, always do your own due diligence, looking into fundamental and technical analysis, a variety of commentary from respected sources and analysts, and the most recent news.

Bear in mind that past performance does not guarantee future results. And never trade with money you can't afford to lose.


Does China have high consumer confidence?

Chinese consumer confidence has fallen since April to below 90.00 points following the country’s prolonged restrictions to curb the spread of Covid-19.

What is China's consumer confidence index?

China’s consumer confidence index is a measure of Chinese people’s perception on their country’s economy and their personal financial situation.

How does consumer confidence influence the economy?

Consumer confidence affects how much consumers are willing to spend their money. Personal or household consumption is one of key economic indicators because it accounts roughly two-third of economic activity in most countries. Fluctuations in personal consumption have a broader impact on retail stocks, commodities and economic growth.

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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