China - Domestic Consumption
Picking through China’s FY2025 and 4Q2025 economic data releases does not make great reading for those of us hoping for a decent recovery in Chinese domestic demand. Household savings have gone through the roof in recent years but there are few signs that consumers will run these savings down despite the miserable interest income received.
One bright spot in recent years has been consumer spending on services. Following the 2020 COVID induced collapse in spending, services have recovered to account for some 45% of total consumption expenditure, the same percentage as 2019. The rate of growth, however, has slowed from 7.4% in 2024 to just 4.5% in 2025.
The distinctive whiff of deflation is evidenced by eleven consecutive quarters where nominal GDP growth has been lower than real GDP growth. Nominal growth was just 4.0% in 2025 while 4Q2025 growth fell to 3.8%. The has to be considered in the context of a 5.0% rise in nominal disposable income per capita in 2025. Household consumption accounted for 39.9% of nominal GDP in 2024. While higher than the lows of circa 35% witnessed during the GFC, this compares to 45% or so at the turn of the century.
The continued weakness of residential property prices (prices fell 13.0% while volumes contracted 9.2% in 2025) must be considered one of the main reasons that consumers remain nervous. Many of them (the majority?) are property owners. Spending in the construction and real estate sectors peaked at roughly 15% of GDP in 2021: it is now just 12%.
Rightly or wrongly, our Asian portfolios have significant exposure to the consumer discretionary sector - much of this in Chinese related positions. The authorities have a formally stated objective of boosting household consumption as a percentage of GDP. We just wish they would get on with it!
If you would like to receive The Daily Update to your inbox, please email markets@epicip.com or click the link below.