Aug 30, 2024

I recently came across some interesting data regarding Chinese consumer spending. The data shows a significant shortfall in household spending since 2019, regardless of how it is measured. While some argue that retail sales are not representative of broader consumption trends in China, the available data still point to a significant impact of the pandemic on consumer spending. In fact, Chinese consumers were hit exceptionally hard by the pandemic, with their spending remaining far below pre-pandemic levels. Additionally, the data suggests that Chinese consumers have done worse than Chinese manufacturers, leading to a sharp expansion of China’s trade and current account surpluses.

In another development, there is a lot of conversation about new geoeconomic pacts and partnerships in the Indo-Pacific region, including the IPEF, CPTPP, DEPA, JETPs, DEFA, and the ASEAN AI guide. China’s potential entry into these pacts, such as the CPTPP, is being closely watched. Despite the challenges in joining these agreements, there are potential benefits for China, especially in terms of pushing through domestic economic reforms.

Overall, these developments highlight the ongoing impact of the pandemic on consumer spending in China and the evolving geoeconomic landscape in the Indo-Pacific region. These are important factors to consider for anyone interested in understanding the global economy and financial markets.

Today, there is a lot of conversation around the concept of diversifying supply chains and de-risking, especially with efforts to move supply chains away from China. Southeast Asian leaders have expressed concerns about this, with Singapore Prime Minister Lawrence Wong noting that selective decoupling, especially in areas like technology, could be concerning. However, when looking at trade data, there are differing perceptions. Some studies have shown a marked increase in the concentration of supply chains over the past decade, raising questions about the difficulty of actually diversifying.

Dr. Deborah Elms, a trade expert, pointed out that while it’s easy for politicians and the media to talk about de-risking and decoupling, it’s much more challenging to actually do it. She highlighted the complex ecosystem and capabilities that China has built, making it difficult to quickly diversify supply chains. While there is some movement in diversifying supply chains, it’s not as fast as portrayed in the media. The shift in supply chains is often driven by Chinese manufacturers moving their production to other countries rather than those countries themselves seizing opportunities.

Stay Well!