BOK: "Recovery in Chinese Private Consumption... Limited Impact on Exports to China"

Bank of Korea 'Overseas Economic Focus'

China Unemployment Rate, Consumer Confidence Index

[Asia Economy Reporter Kim Eun-byeol] Consumer sentiment in China, which had significantly contracted following the shock of the novel coronavirus disease (COVID-19), is gradually returning to normal. After the COVID-19 shock, China's economy showed a rapid recovery centered on exports and investment, but private consumption lagged behind, raising concerns.

On the 29th, the Bank of Korea stated in its 'Overseas Economic Focus' report, "China's previously sluggish consumption turned to growth in the third quarter, establishing a virtuous cycle between production and consumption, which is expected to strengthen the recovery momentum." It added, "China's private consumption is expected to continue recovering as the unemployment rate continues to decline and consumer sentiment, which had been depressed by COVID-19, shifts to an upward trend."

China's consumption had been declining this year due to worsening employment conditions and weakened consumer sentiment caused by the spread of COVID-19, but it has been gradually improving since September, mainly in durable goods. Although the decline in China's consumption was smaller than that of major countries such as the United States and the European Union (EU), its recovery speed was slower. This was due to the Chinese government's fiscal support focusing on production normalization and infrastructure investment.

However, recently, household income conditions in China have been gradually improving, and with the Chinese government strengthening policy support, consumer sentiment is also showing signs of recovering to pre-crisis levels. The Bank of Korea stated, "With stable employment conditions in the construction industry and the service sector gradually recovering, especially in face-to-face services supported by COVID-19 containment and the domestic substitution of overseas travel, household income conditions are expected to improve progressively. Furthermore, with the easing of uncertainties caused by COVID-19 and strengthened policy support promoting a shift to a consumption-structured economy, consumer sentiment is expected to gradually improve." It added, "The housing market continues to show stable activity supported by active transactions, and household loan conditions are generally expected to remain favorable."

As China's consumption shows signs of recovery, it is expected to complement infrastructure and real estate investment and exports, which have led the economic recovery so far, thereby supporting growth. However, the Bank of Korea pointed out that structural constraints such as income polarization and a fragile social security system persist, suggesting that it may take a considerable time for consumption to be fully activated as intended.

Additionally, the Bank of Korea explained, "China's consumption recovery will have a positive impact on South Korea's exports to China," but also noted, "Since the share of consumer goods in exports to China (around 5%) is not high, the effect on export growth is expected to be limited." Chinese consumers have a strong preference for domestic products, resulting in a significantly lower proportion of imported consumer goods compared to major countries.

This content was produced with the assistance of AI translation services.