China_ divergent retail sales performance across cities. Fri Feb 28 2025

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the retail sales performance in China, highlighting the divergent trends across different city tiers [2][3]. Core Insights 1. Weak Consumption as a Structural Issue - Weak consumption is identified as a major structural problem in China, contributing to a supply-demand imbalance and prolonged deflation pressure. From 2022 to 2024, consumption contributed an average of 2.8 percentage points to GDP growth per annum, significantly lower than the 4.2 percentage points from 2016 to 2019 [3][12]. 2. Retail Sales Growth Disparity - Cumulative retail sales growth from 2022 to 2024 was only 3.5% in tier-1 cities, compared to 8.6% in tier-2 cities and 11.2% in lower-tier cities [4][5]. This indicates a significant divergence in retail performance across city tiers. 3. City-Level Performance Variability - Among 168 cities analyzed, 8 cities reported over 20% cumulative growth, while 5 cities experienced a contraction. Notably, Beijing and Shanghai reported declines of -5.4% and -0.8%, respectively [6][8]. 4. Household Income as a Key Driver - A strong positive correlation exists between household income growth and retail sales growth, with an R-squared value of 0.32. This suggests that household income is a critical factor influencing consumption [9][12]. 5. Policy Implications for Consumption Boost - The report discusses the need for policies that boost household income and consumption. Direct fiscal transfers, such as cash handouts or consumption vouchers, are seen as temporary solutions. A more sustainable approach would involve broadening employment and income bases, particularly in the service sector [12][28]. 6. Housing Market Dynamics - The housing market's impact on consumption is multifaceted, involving both wealth effects and debt service burdens. The report notes that the decline in home prices has negatively affected consumption, particularly in tier-1 cities where home prices remain high relative to income [14][29]. 7. Debt Service Burden and Affordability - The average home price to income ratio was 17.0 in tier-1 cities, compared to 8.6 in tier-2 and 6.9 in tier-3 cities. High ratios in tier-1 cities correlate with weaker retail sales growth due to increased mortgage burdens [23][24]. 8. Government Actions and Local Discretion - Recent government actions to support consumption, such as trade-in subsidies, are noted. However, the effectiveness of these measures may vary across cities, necessitating local discretion to maximize impact [30][27]. Additional Important Insights - The report emphasizes the importance of addressing the social safety net and public services to reshape household expectations and reduce precautionary savings [13][28]. - The ongoing debate regarding effective policy measures to stimulate consumption highlights the complexity of the economic landscape in China [12][27]. This summary encapsulates the key findings and insights from the conference call, providing a comprehensive overview of the current state of retail sales in China and the factors influencing consumption trends.