Covid-19 hit Chinese economy on a slow path to recovery, says UBS

At a time when the two biggest nations across the globe – the United States (US) and India – are engaged in a bitter battle with China over trade and geopolitical issues, the Asian country may well be on a slow path to economic recovery after being hit with Covid-19 pandemic. A recent report by UBS suggests China, which was the first country to suffer the pandemic but also the first to relax mobility restrictions, could see a rise in consumption over the next few months. The recovery, however, will be slow with consumption rebounding strongly from the March 2020 quarter (Q120) level, but stay flat in 2020 as a whole, before growing by 8.8 per cent in 2021 due to the low base.

The third UBS Evidence Lab's China consumer survey was conducted by UBS in May 2020, collecting answers from 3,000 respondents across different tiers of cities, age and income groups to questions about their finances, consumption, and in particular about the impact of Covid-19 and how consumption might recover afterwards.

While two-thirds of respondents reported income decline and 62 per cent reduced consumption in the past three months, 61 per cent expected income to rise and 58 per cent expect consumption to increase in the next three months. For the next 12 months, 60 per cent of respondents expect salary to increase with an average increase of 4.7 per cent, the UBS report said.

“Areas where the most respondents planned to increase spending are sports & gym (27 per cent), medical & healthcare (25 per cent), while areas where a spending cut was seen include travelling (25 per cent). 62 per cent of the respondents increased online shopping than before the outbreak. Consumption upgrade is continuing with 77 per cent of the respondents agree to pay more for better products," wrote Tao Wang, an economist at UBS in a July 6 co-authored report.

With 94 per cent of respondents having resumed work as of late-May, consumers' near term expectations notably improved, the UBS' survey findings suggest. “We estimated that 70-80 million workers were not working or had lost their jobs at the end of March in key sectors, but this number has declined to 15-20 million at end-May. The survey findings are consistent with macro level data showing retail sales recovering from -19 per cent YoY in Q120 to -2.8 per cent in May,” Wang wrote.

Consumption levels

The Covid-19 pandemic, however, has been unable to reverse the consumption upgrade trend towards premium goods and more services, as 77 per cent of respondents, according to UBS, would still pay more for better products, and over half would choose self-improvement (education and sports) over goods.

“The survey showed that fewer respondents (though still 62 per cent) expected property values to appreciate in the next 12 months, suggesting that a property wealth effect may not be a headwind for consumption. The survey showed increased penetration for all major types of consumer debt, and more respondents planning to increase saving and insurance than in the 2019 survey. Both may potentially dampen a recovery in consumption,” Wang wrote.

The survey showed increased penetration for all major types of consumer debt, and more respondents planning to increase saving and insurance than in the 2019 survey. Both, UBS said, may potentially dampen a recovery in consumption.