Growth Dragons Weekly: China Consumer Prices Rise, Retirement Age Increases, and Growth in Yum China, Moutai, and SMIC
What happened in China this week:
China Consumer Prices Rose, New Policies to Boost Consumption
Aging Chinese Population? Raise Retirement Age!
Yum China Reports Strong Consumer Demand, Expands Presence in Lower-Tier Cities
Moutai Expands into Chip Making, Diworsifying or National Duty?
SMIC's Revenue Grows by 22% Despite a 63% Profit Decline in Q2
#1 China Consumer Prices Rose, New Policies to Boost Consumption
Following a weak PMI report, China’s consumer prices rose by a higher-than-expected 0.5% in July compared to a year ago, driven primarily by a surge in pork prices, according to data released by the National Bureau of Statistics on Friday.
The 0.5% CPI increase in July marks the highest rise since February's 0.7%. Pork prices, a staple in China, surged by 20.4% year-on-year in July, the largest increase since December 2022, according to Wind data. Although pork prices are prone to fluctuations due to factors like disease outbreaks, the Core CPI—which excludes food and energy prices—also saw a 0.4% year-on-year increase in July. This could be a positive indicator that Chinese consumers are beginning to spend more, though one month alone does not establish a trend.
Other consumer categories such as tourism, education and entertainment, and transportation fuel saw increases of 3.1%, 1.7%, and 5.1%, respectively. The chief statistician at the National Bureau of Statistics attributed the rise in the headline CPI, including food and energy prices, to a continued recovery in consumption demand.
In the property-related sector, it was expected that prices would continue to decline, but this drag seems to be offset by growth in other areas. Rental prices fell by 0.3%, home appliance prices dropped by 1.8%, and prices of building materials and non-metallic materials decreased by 5.2% in July. While some declines exceeded forecasts and others were less severe, a bottom has yet to be determined, and the struggle in this sector could persist. However, the increasing focus on other consumer products is a positive sign for the economy.
To stabilize prices and maintain a steady upward trend, China’s State Council has outlined 20 steps under the “《国务院关于促进服务消费高质量发展的意见》” aimed at boosting spending. This initiative emphasizes the consumption of famous local delicacies, entertainment, and social activities. While China has annually issued guidelines to bolster consumption, this year’s focus is less on big-ticket items and more on fostering a holistic engagement and consumption framework that touches every aspect of a citizen’s life. Specific measures include encouraging the purchase of smart home appliances, health supplements, and fostering a healthy consumer environment through consumer protection and the promotion of honest business practices.
China’s top-down economic approach is evident in the government's new focus on boosting consumption with this policy direction. The government recognizes the issue and is acting on it. The next step will be to observe whether these measures can indeed foster more spending and drive CPI growth to a more desirable level.