The ongoing weakness in household consumption after the COVID-19 outbreak has been one of the most surprising trends within China’s economy this year. Expectations of pent-up demand have not materialized, and consumers are becoming more cautious instead. Fundamentally, this is because of weak employment and income growth, both of which have come under greater pressure from Beijing’s regulatory tightening campaigns.
In this note, we evaluate employment trends in the weakening property sector and within education and tutoring firms, which were subject to new controls over the summer. Current trends in consumption and income growth are running contrary to Beijing’s longer-term objective to boost the size of the middle-income population in China and reduce inequality. Altering these dynamics will require more concerted policy support to boost household incomes, and likely new drivers of employment growth as well.
