BEIJING/DALIAN, China -- With the trade war ravaging the stock market and companies laying off staff, Chinese consumers are increasingly reluctant to spend on big-ticket items such as smartphones, cars and houses.
The impact of China's consumption slump transcended borders this week, as Apple cut its revenue forecast due in large part to weak sales in Greater China, delivering a blow to stock markets worldwide.
The government looks to be running out of quick fixes, as past policies of fueling spending through stimulus and pushing homebuyers to overreach pack less of a punch.
"No way can I afford a new smartphone," sighed Zhou Haifeng, a 34-year-old company employee in the northeast port city of Dalian. His monthly salary of 5,000 yuan ($728) has not risen in three years. With a baby due next month, he borrowed from an acquaintance to cover childbirth-related expenses of 20,000 yuan. The iPhone he has used for four years crashes frequently, but "I'll have to use it for one more year, and next time buy one from a Chinese maker," he said, a far less expensive option.
The slowdown is clear in the official statistics. Total retail sales for consumer goods grew at the slowest pace in 15 years in November, at 8.1% year on year. For consumer goods, a field where data is viewed as highly reliable, sales grew at an all-time recorded low of 2.1%, and shrank once adjusted for inflation. Unit sales of vehicles have been down for five months straight, while mobile phones fell for six consecutive quarters through July-September.
The decline owes partly to economic stimulus measures China unleashed in 2015. Seeking to quell market anxieties that caused prices on the Shanghai Stock Exchange to plunge and the yuan to soften rapidly, authorities loosened requirements for housing loans in major cities, and offered low-income people in regional cities cash to leave their old homes and buy condominiums. In two years, condo prices in Beijing and Shanghai soared by over 50%.
The rise in asset values created a consumption-boosting wealth effect. Expensive baiju spirits flowed more freely, while rising iPhone prices helped cover falling unit sales. A tax cut on cars that took effect in 2015 also spurred demand. Though the manufacturing sector suffered a slump in 2015, consumption was sound, and retail sales maintained double-digit growth until 2017.
But authorities, fearful of a bubble, began tightening in 2016 and 2017, clamping down on condo sales in major cities. At present, condo prices in Beijing and Shanghai are staying flat or declining slightly, and unprecedentedly tight regulations on buying and selling make it difficult for owners to sell properties.
Meanwhile, household debt had soared to 50% of China's gross domestic product by the end of June 2018 -- up 10 percentage points in just over two years, a faster rise even than in the U.S. just before the 2008 global financial crisis. More than a few married couples in Beijing and Shanghai put one partner's entire income toward repaying home loans.
With consumers in this predicament, Beijing's retail sales fell 2.8% year on year in November 2018, the first decline in four years and nine months.
The U.S.-China trade war salted the wound, with plummeting stock prices crimping private businesses' ability to raise funds. Companies in typically high-paying fields like information technology, real estate and finance were forced into a wave of restructuring. Migrant workers from the countryside that came to work at the companies have returned home.
The government has launched its own countermeasures. In October, it introduced big income tax cuts, and Chinese Premier Li Keqiang said Friday that Beijing intends to further reduce taxes and fees.
But some economists argue income tax cuts are ineffective at lifting consumption since just 2% of the population actually pays income tax.
The quickest path out of this would be for real estate prices to rise, since most households have the majority of their money tied up in the home. But the leaders of China's Communist Party have thoroughly studied the ill effects of Japan's asset bubble, and are thought to be highly cautious about loosening restrictions on buying and selling homes.